UNITED STATES DEPARTMENT OF STATE FISCAL YEAR 2013 AGENCY FINANCIAL REPORT
Smart Investments for America’s Future
“ We are acting on several fronts at once to make strategic investments that deliver maximum result for minimal expenditure of taxpayer dollars.” Percent Change FY 2013 Highlights (dollars in billions) 2013 over 2012 2013 2012 2011 2010 Balance Sheet Totals as of September 30 Total Assets +7% $ 84.8 $ 79.6 $ 73.6 $ 68.3 Total Liabilities +4% 26.4 25.4 24.1 23.6 Total Net Position +8% 58.4 54.2 49.5 44.7 Results of Operations for the Year Ended September 30 Total Net Cost of Operations –5% $ 25.1 $ 26.5 $ 23.2 $ 21.5 Budgetary Resources for the Year Ended September 30 Total Budgetary Resources +5% $ 60.6 $ 57.5 $ 53.3 $ 52.6
Visas Issued at Foreign Posts 9.2 million 8.9 million 7.5 million 6.4 million Table of Contents 2 57 121 Introduction Section II: Financial Section Section III: Other Information
2 About This Report 57 Message from the Comptroller 121 Schedule of Spending 2 About The Cover 59 OIG Transmittal and Independent 122 Inspector General’s Assessment Auditor’s Report of Management and 3 How This Report is Organized Performance Challenges 76 Comptroller Response to the OIG 129 Management’s Response to 78 Principal Financial Statements Inspector General 79 Consolidated Balance Sheet 4 132 Summary of Financial Statement Message from the Secretary 80 Consolidated Statement of Audit and Management Net Cost Assurances 81 Consolidated Statement of 133 Improper Payments Information Changes in Net Position Act and Other Laws and Regulations 7 82 Combined Statement of Section I: Management’s Budgetary Resources 139 Financial Management Systems Summary Discussion and Analysis 83 Notes to the Principal Financial Statements 144 Heritage Assets 7 About The Department 118 Required Supplementary 14 Strategic Goals and Government- Information wide Management Initiatives 24 Performance Summary and Highlights 39 Financial Summary and Highlights 149 49 Management Assurances and Appendices Other Financial Compliances 149 A: Abbreviations and Acronyms 154 C: U.S. Secretaries of State Past and Present 152 B: Department of State Locations 155 D: Websites of Interest
Images featured on inside front cover and Table of Contents are credited and captioned on page 156 INTRODUCTION | ABOUT THIS REPORT AND COVER
About This Report
he U.S. Department of State’s Agency Financial Report December 2013; (2) an agency Annual Performance Report (APR) (AFR) for Fiscal Year (FY) 2013 provides an overview for FY 2013 in conjunction with the FY 2015 Congressional T of the Department’s financial and performance data Budget Justification (CBJ), which is the Department’s budget to help Congress, the President, and the public assess our request to Congress, to be issued in February 2014; and (3) a stewardship over the resources entrusted to us. This report Summary of Performance and Financial Information, to be released is available at the Department’s website (www.state.gov/s/d/ also in February 2014. The last report will be produced jointly rm/rls/perfrpt/2013/index.htm) and includes sidebars, videos, with the U.S. Agency for International Development (USAID). infographics, links, and information that satisfies the These reports will be available online athttp://www.state.gov/s/d/ reporting requirements contained in the following legislation: rm/c6113.htm.
■■ Federal Managers’ Financial Integrity Act of 1982, ABOUT THE COVER ■■ Chief Financial Officers Act of 1990, The cover is a photo montage that presents the Department’s ■■ Government Performance and Results Act (GPRA) commitment to making smart investments for America’s future at a of 1993, time when our foreign policy matters more than ever before in our ■■ Government Management Reform Act of 1994, daily lives. The images include: (top left) Assistant Secretary of ■■ Federal Financial Management Improvement Act of 1996, State for Western Hemisphere Affairs Roberta Jacobson meets with the Central American Youth Ambassadors at the U.S. Department ■■ Reports Consolidation Act of 2000, of State in Washington, D.C., March 11, 2013; (right) U.S. ■■ Accountability of Tax Dollars Act of 2002, Secretary of State John Kerry, U.S. Secretary of the Treasury Jacob ■■ Improper Payments Information Act of 2002, and Lew, Chinese State Councilor Yang, and Chinese Vice Premier ■■ GPRA Modernization Act of 2010. Wang participate in the U.S.-China Economic and Strategic Dialogue Joint Session on Climate Change at the U.S. Department The AFR is the first of a series of three annual financial and of State in Washington, D.C., July 10, 2013; and (bottom left) the performance reports the Department will issue. The reporting Harry S Truman Building, headquarters for the State Department, schedule includes: (1) an Agency Financial Report issued in in Washington, D.C.
Certificate of Excellence in Accountability Reporting
n May 2013, the U.S. Department Iof State received the Certificate of Excellence in Accountability Reporting (CEAR) from the Association of Government Accountants (AGA) for its FY 2012 Agency Financial Report. The CEAR Program was established by the AGA, in conjunction with the Chief Financial Officers Council, to further performance and accountability reporting. This represents the sixth time the Department has won the CEAR award.
2 | United States Department of State • 2013 Agency Financial Report HOW THIS REPORT IS ORGANIZED | INTRODUCTION
How This Report is Organized
he State Department’s FY 2013 Agency Financial Report (AFR) provides financial and performance information for the fiscal year beginning October 1, 2012, and ending on September 30, 2013, with comparative prior year data, T where appropriate. The AFR demonstrates the agency’s commitment to its mission and accountability to Congress and the American people. This report candidly presents the Department’s operations, accomplishments, and challenges. The FY 2013 AFR begins with a message from the Secretary of State, John F. Kerry. This introduction is followed by three main sections and various appendices. In addition, a series of “In Focus” sidebars are interspersed to present useful information on the Department.
Section I: Management’s Discussion and Analysis
Section I provides an overview of the Department’s performance and financial information. It includes a brief history of the Department, introduces its mission and values, and describes the agency’s organizational structure. This section highlights the Department’s performance accomplishments for selected key performance results associated with the Department’s goals and priorities. The section also highlights the agency’s financial results, and provides management’s assurances on the Department’s internal controls.
Section II: Financial Section
The Harry S Truman Building, headquarters for the State Department, Section II begins with a message from the Comptroller. is seen in Washington, D.C. ©AP Image This section details the Department’s finances and includes the audit transmittal letter from the Inspector General, the independent auditor’s reports, and the audited financial a summary of the results of the Department’s financial statements and notes. The Required Supplementary statement audit and management assurances and describes Information included in this section provides a combining the Department’s financial legal requirements, as well as schedule of budgetary resources, a report on the Department’s improper payments efforts, financial management systems, year-end deferred maintenance, and the condition of heritage and a summary of the Department’s heritage assets. asset collections. Appendices Section III: Other Information The appendices include data that supports the main sections Section III begins with the Schedule of Spending and the of the AFR. This includes a glossary of abbreviations and Inspector General’s assessment of the agency’s management acronyms used in the report, a map of the Department of and performance challenges and a brief summary of the State’s locations across the globe, a list of the past and present Department’s corrective actions. The section also includes U.S. Secretaries of State, and websites of interest.
2013 Agency Financial Report • United States Department of State | 3 MESSAGE FROM THE SECRETARY
Message from the Secretary
am pleased to present the U.S. Department of State’s demand for U.S. leadership has never been higher, and the Agency Financial Report (AFR) for Fiscal Year (FY) challenges we face are great: bringing stability to the Middle I2013. The following pages describe the Department’s East and North Africa, deepening our political, security, commitment to making smart investments for America’s future and economic ties to the Asia Pacific region, completing the at a time when our foreign policy matters more than ever transition in Afghanistan, tackling climate change and putting before in our daily lives. In an era of shrinking budgets and the world on the path to a clean energy future, and promoting an increasingly interdependent world, we have had to make good governance and human rights, to name just a few. tough choices. The financial and performance information in this report demonstrates the seriousness with which we take At the same time, the products that we buy, the goods that we our responsibility to advance America’s core national security sell, and the economic opportunities we create here at home and economic interests, while using taxpayer dollars efficiently increasingly are intertwined with the lives of people across and effectively. the world. If we pull back from engaging abroad, we will not only hurt those who depend on us today, we will diminish The Department’s mission is to create a more secure, our own values and fail to meet our responsibilities to the democratic, and prosperous world for the benefit of the next generation. American people and the international community. The By making foreign policy investments now aimed at overcoming these challenges and increasing America’s prosperity, we can avoid much costlier burdens down the road. Deploying diplomats and development experts on the frontlines today is much cheaper than deploying troops tomorrow. That is why we are acting on several fronts at once to make strategic investments that deliver maximum result for minimal expenditure of taxpayer dollars.
This approach paid significant dividends in FY 2013: we sustained the democratic opening in Burma, we strengthened our partnerships with China and India to reduce carbon emissions, and we celebrated the 10th anniversary of the U.S. President’s Emergency Plan for AIDS Relief (PEPFAR)—and the fact that the
U.S. Secretary of State John Kerry speaks during a news conference at Wajbah Palace, in Doha, Qatar, March 5, 2013. ©AP Image MESSAGE FROM THE SECRETARY
one-millionth baby was born HIV-free because of PEPFAR increased security at posts, strengthened training for support, something unimaginable just a decade ago. personnel, modernized facilities, and added staff dedicated to promoting U.S. trade and investment. These reforms are just We know the difference that the United States can make the beginning. The second QDDR, which will be released around the world and we are continuing to deliver solutions in 2014, will further focus our diplomatic and development matching the scale of the many challenges we face. We are efforts and guide our investments to obtain the best value addressing political transitions, emerging security threats, and for taxpayers. humanitarian crises in the Middle East and North Africa. We are negotiating major trade agreements with Europe and the The Department remains committed to high standards of Asia Pacific. We continue to disrupt, dismantle, and defeat financial operations, reporting, and accountability, and to the al-Qa’ida’s core leadership and address security challenges, continued improvement of our financial management and from South Asia to the Sahel. And we are strengthening internal controls. The Message from the Comptroller in this our relationships and building new alliances with emerging AFR underscores our improvements in FY 2013 and includes powers, engaging them on the most important global issues. the results of the independent audit of our FY 2013 Financial Statements. To ensure this AFR is complete and reliable, We are making crucial investments in the President’s signature we worked with our Independent Auditor on the financial development initiatives on food security, health, energy, and data, and with our bureaus and missions on the summary climate change. These programs will help drive a 21st Century performance data. development policy and create shared prosperity between the United States and our partners around the world. And in all With the leadership of President Obama and the of our efforts, we are ensuring all the gears of global growth cooperation I will work hard to secure from the Congress, are working together to create opportunity and grow the U.S. I am confident that the United States will continue to lead economy. That is why we are committed to supporting the as the indispensable nation. I am honored every day to President’s National Export Initiative by promoting increased work alongside my Department of State colleagues as we U.S. exports and, in turn, creating quality jobs for Americans. make smart investments for America’s future. Even in a tight budget climate, Americans deserve a strong foreign We are achieving all of this by closely examining our policy, and the world still seeks U.S. leadership to advance investments and making tradeoffs to obtain the best value economic opportunity, freedom, and peace. That is when for Americans’ dollars. For example, we are reducing funding the United States is at its best and those are the values that for Afghanistan, Pakistan, and Iraq to reflect our downsized the Department defends every single day. presence and programs, while increasing funding for the commercial diplomacy and development programs that reflect U.S. economic interests and values.
The first Quadrennial Diplomacy and Development Review John F. Kerry (QDDR) provided a roadmap for investing in our efforts Secretary of State to keep America strong and Americans secure. We have December 16, 2013
2013 Agency Financial Report • United States Department of State | 5 Deputy Secretary of State William Burns delivers remarks at the Pathways to Prosperity Ministerial in Cali, Colombia, October 23, 2012.
Department of State SECTION I: Management’s Discussion and Analyisis
No investment matches the returns we collect on the down payment we make in our foreign policy. In fact, for just over one percent of our national budget – a single penny on the dollar – we fund our civilian foreign affairs efforts: every embassy, every consulate, and the programs and people that “ carry out our missions. – Secretary of State, John Kerry About the Department
Our Mission Statement
Shape and sustain a peaceful, prosperous, just, and democratic world and foster conditions for stability and progress for the benefit of the American people and people everywhere.
Our Values
2013 Agency Financial Report • United States Department of State | 7 MANAGEMENT’S DISCUSSION AND ANALYSIS | ABOUT THE DEPARTMENT
Our History
The U.S. Department of State (the Department) is the lead U.S. foreign affairs agency within the Executive Branch and the lead institution for the conduct of American diplomacy. Established by Congress in 1789, the Department Did You Know? is the nation’s oldest and most senior cabinet agency.
The Department is led by the Secretary of State, who is On February 1, 2013, John F. Kerry was sworn nominated by the President and confirmed by the U.S. Senate. in as the 68th Secretary of State of the United The Secretary of State is the President’s principal foreign policy States. For a complete list of those who have advisor and a member of the President’s Cabinet. The Secretary served as U.S. Secretary of State, please refer carries out the President’s foreign policies through the State to Appendix C of this report. Department and its employees.
Our Organization and People
The Department of State advances U.S. objectives and Department carries out its foreign affairs mission and values interests in the world through its primary role in developing in a worldwide workplace, focusing its energies and resources and implementing the President’s foreign policy worldwide. wherever they are most needed to best serve the American The Department also supports the foreign affairs activities people and the world. of other U.S. Government entities including the United States Agency for International Development (USAID). The Department is headquartered in Washington, D.C. and has USAID is the U.S. Government agency responsible for an extensive global presence, with more than 270 embassies, most non-military foreign aid and it receives overall foreign consulates, and other posts in over 180 countries. A two-page policy guidance from the Secretary of State. The State map of the Department’s locations appears in Appendix B. The Department also operates several other types of offices, mostly located throughout the United States, including several passport agencies, two foreign press centers, one reception center, five logistic support offices for overseas operations, 20 security offices, and two financial service centers.
The Foreign Service officers and Civil Service employees in the Department and U.S. missions abroad represent the American people. They work together to achieve the goals and implement the initiatives of American foreign policy. The Foreign Service is dedicated to representing America and to responding to the needs of American citizens living and traveling around the world. They are also America’s first line of defense in a complex and often dangerous world. The Department’s Civil Service corps, most of whom are Megan Willis conducts interviews in a shop in Gandiaye, Senegal as part of an interagency conflict assessment led by the headquartered in Washington, D.C., is involved in virtually Department in advance of Senegalese elections. Department of State every policy and management area – from democracy and human rights, to narcotics control, trade, and environmental
8 | United States Department of State • 2013 Agency Financial Report ABOUT THE DEPARTMENT | MANAGEMENT’S DISCUSSION AND ANALYSIS
Assistant Secretary of State for East Asian and Pacific Affairs Kurt M. Campbell and National Security Council Senior Director for Asian Affairs Daniel Russel participate in a meeting with Japanese Foreign Minister Fumio Kishida at the Ministry of Foreign Affairs in Tokyo, Japan, January 17, 2013. Department of State
issues. Civil Service employees also serve as the domestic These impacts include: counterpart to Foreign Service consular officers who issue passports and assist U.S. citizens overseas. 1) We create American jobs. We directly support 20 million U.S. jobs by promoting new and open markets for U.S. Host country Foreign Service National (FSN) and other firms, protecting intellectual property, negotiating new Locally Employed (LE) staff contribute to advancing the work airline routes, and competing for foreign government of the Department overseas. Both FSNs and other LE staff and private contracts. contribute local expertise and provide continuity as they work 2) We support American citizens abroad. We provided with their American colleagues to perform vital services for emergency assistance to U.S. citizens in countries U.S. citizens. At the close of FY 2013, the Department was experiencing natural disasters or civil unrest. In calendar comprised of approximately 71,000 employees. year 2012, the most recent year that figures are available, we assisted in over 8,600 international adoptions and The U.S. Department of State, with just over one percent received more than 1,600 reports of international parental of the entire federal budget, has an outsized impact on child abduction. We also assisted in the return of over Americans’ lives at home and abroad. For a relatively small 560 abducted children to the United States. investment, the Department yields a large return in a cost- effective way by advancing U.S. national security, promoting 3) We promote democracy and foster stability around the our economic interests, creating jobs, reaching new allies, world. Stable democracies are less likely to pose a threat strengthening old ones, and reaffirming our country’s role in to their neighbors or to the United States. In South the world. The Department’s mission impacts American lives Sudan, Libya, and many other countries, we worked to in multiple ways. foster democracy and peace.
For more information, see the fact sheet: Ten Things 4) We help to make the world a safer place. Together with You Should Know About the State Department: Russia, under the New Strategic Arms Reduction Treaty, we are reducing the number of deployed nuclear weapons http://www.state.gov/r/pa/pl/2013/202844.htm to levels not seen since the 1950s. Our nonproliferation
2013 Agency Financial Report • United States Department of State | 9 MANAGEMENT’S DISCUSSION AND ANALYSIS | ABOUT THE DEPARTMENT
programs have destroyed stockpiles of missiles, munitions, and material that can be used to make a nuclear weapon. The Department has helped more than 40 countries clear millions of square meters of landmines. 5) We save lives. Strong bipartisan support for U.S. global health investments has led to worldwide progress against HIV/AIDS, tuberculosis, malaria, smallpox, and polio. Better health abroad reduces the risk of instability and U.S. Secretary of State John Kerry delivers remarks at the University of Virginia in Charlottesville, Virginia, February 20, 2013. Department of State enhances our national security.
6) We help countries feed themselves. We help other countries plant the right seeds in the right way and get crops to markets to feed more people. Strong agricultural Secretary Kerry Delivers Remarks sectors lead to more stable countries. on Investing in Foreign Policy 7) We help in times of crisis. From earthquakes in Haiti, Japan, and Chile, to famine in the Horn of Africa, our ecretary of State John Kerry made his first major public address dedicated emergency professionals deliver assistance to Sregarding U.S. foreign policy and diplomacy on February 20, 2013 those who need it most. in Old Cabell Hall at the University of Virginia – founded by Thomas 8) We promote the rule of law and protect human dignity. Jefferson, America’s first Secretary of State. We help people in other countries find freedom and shape Ahead of his first overseas trip, Secretary Kerry spoke directly to their own destinies. Reflecting U.S. values, we advocate the American people about the value of its investments in a strong for the release of prisoners of conscience, attempt to foreign policy. The Secretary discussed how a relatively small Federal prevent political activists from suffering abuse, train police Government investment in America’s foreign policy and diplomatic officers to combat sex trafficking, and equip journalists to efforts – just over one percent of the national budget – results in a large hold their governments accountable. return for America’s economy and security. Secretary Kerry remarked: 9) We help Americans see the world. The Department’s “Foreign assistance is not a giveaway. It’s not charity. It is an investment Bureau of Consular Affairs supports and protects the in a strong America and in a free world.” American public. In 2013, we issued 13.5 million The Secretary further asserted the urgent need for a strong foreign passports and passport cards for Americans to travel policy to protect American interests in the world: “A wise investment abroad. We facilitate the lawful travel of international in foreign policy can yield for a nation the same return that education students, tourists, and business people to the United does for a student. And no investment that we make that is as small States, adding greatly to our economy. We also keep as this investment puts forward such a sizeable benefit for ourselves Americans apprised of dangers or difficulties abroad and for our fellow citizens of the world.” through our travel warnings.
Secretary Kerry’s remarks in Charlottesville, Virginia, were the first in a For more information, a video on Consular Affairs series of domestic addresses he has delivered as Secretary to report to entitled “Welcoming the World” may be viewed at: the American people about foreign policy and its impact back home. http://video.state.gov/en/video/2761491252001
For more information, a video and transcript of this speech may be viewed at: http://www.state.gov/secretary/remarks/2013/02/205021.htm
10 | United States Department of State • 2013 Agency Financial Report ABOUT THE DEPARTMENT | MANAGEMENT’S DISCUSSION AND ANALYSIS
10) We are the face of America overseas. Our diplomats, development experts, and the programs they implement Established are the source of American leadership and the embodiments of our American values around the world. ■■ Coordinator for Sanctions Policy (D/CSP)
■■ The Department’s organizational chart appears on page 13. Major Events and Conferences Staff (M/MECS) As shown, the Secretary of State (S) is supported by two ■■ Faith Based Community Initiatives (S/FBCI) Deputy Secretaries, the Executive Secretariat (S/ES), ■■ the Office of U.S. Foreign Assistance Resources (F), the Senior Advisor (S/SRA) Counselor (C) and Chief of Staff (S/COS), six Under Renamed Secretaries, and over 30 functional and management bureaus and offices. The Deputy Secretary of State (D) serves as ■■ Deputy Secretary of State (D) – formerly D(B) the principal deputy, adviser, and alter ego to the Secretary of State. The Deputy Secretary of State for Management ■■ Deputy Secretary of State for Management and Resources (D–MR) serves as the Department’s Chief and Resources (D–MR) – formerly Deputy Operating Officer. The Under Secretaries have been Secretary D(N) established for Political Affairs (P); Economic Growth, Energy ■■ Office of Emergencies in the Diplomatic and and Environment (E); Arms Control and International Consular Services (M/EDCS) – formerly K Fund Security Affairs (T); Public Diplomacy and Public Affairs (R); Manager and Gift Fund Coordinator (RM/CFO) Management (M); and Civilian Security, Democracy and Human Rights (J). The Under Secretary for Management ■■ Office of Global Health Diplomacy (S/GHD) – also serves as the Chief Financial Officer for the Department. formerly Executive Director for Global Health Initiative (S/GHI) The Department’s political affairs mission is supported ■■ Office of the Ombudsman (S/O) – formerly Civil through six regional bureaus — each is responsible for a Service Ombudsman (S/SCO) specific geographic region of the world. These include: ■■ Special Envoy for Israeli-Palestinian Negotiations ■■ Bureau of African Affairs (AF), (S/SEIPN) – formerly Special Envoy for Middle ■■ Bureau of European and Eurasian Affairs (EUR), East Peace (S/SEMEP) ■■ Bureau of East Asian and Pacific Affairs (EAP), ■■ Bureau of Near Eastern Affairs (NEA), ■■ Bureau of South and Central Asian Affairs (SCA), and For more information, view the video entitled “About the Department” at: http://video.state.gov/ ■■ Bureau of Western Hemisphere Affairs (WHA). en/video/2761500542001
The Department also includes the Bureau of International Organization Affairs. This Bureau develops and implements U.S. policy in the United Nations, its specialized and voluntary agencies, and other international organizations.
In accordance with the Quadrennial Diplomacy and Devel- opment Review (QDDR) recommendations for improving efficiency and unifying efforts, several Coordinators Offices, Special Envoys/Representative Offices, Special Advisors, and Secretaries were either established or renamed in FY 2013.
2013 Agency Financial Report • United States Department of State | 11 MANAGEMENT’S DISCUSSION AND ANALYSIS | ABOUT THE DEPARTMENT
Our Work at Home and Overseas U.S. Government point of contact for Americans overseas and foreign nationals of the host country. At home, the passport process is often the primary contact The Mission serves the needs of Americans traveling, most U.S. citizens have with the Department of State. working, and studying abroad, and supports Presidential There are 28 domestic passport agencies and centers, and and Congressional delegations visiting the country. more than 8,100 passport acceptance facilities nationwide. The Department designates many post offices, clerks of Every diplomatic mission in the world operates under court, public libraries and other state, county, township, and a security program designed and maintained by the municipal government offices to accept passport applications Department’s Bureau of Diplomatic Security (DS). In on its behalf. In 2013, the Washington and Special Issuance the United States, DS investigates passport and visa Passport Agencies relocated to a new facility in downtown fraud, conducts personnel security investigations, and Washington, D.C. A new Passport Agency in San Juan, protects the Secretary of State and high-ranking foreign Puerto Rico is scheduled to open in January 2014. dignitaries and visiting officials. An “In Focus” view of our global visa fraud investigations is shown below. Overseas, in each Embassy, the Chief of Mission (usually an Ambassador) is responsible for executing Additionally, the Department utilizes a wide variety of U.S. foreign policy aims, as well as coordinating and technology tools to further enhance its effectiveness and managing all U.S. Government functions in the host magnify its efficiency. Today, most offices increasingly rely on country. The President appoints each Chief of Mission, digital video conferences, virtual presence posts, and websites who is then confirmed by the Senate. The Chief of to support their missions. The Department also leverages social Mission reports directly to the President through the networking Web tools to engage in dialogue with a broader Secretary of State. The U.S. Mission is also the primary audience. See Appendix D for Department websites of interest.
Increased Number of Visa Crime Investigations Opened Globally
he Bureau of Diplomatic Security T(DS) is the security and law In July 2013, in Denver, Colorado, enforcement arm of the Department. a jury found Kizzy Kalu guilty on Visa crimes are international offenses 89 charges of trafficking in forced labor, visa fraud, mail fraud, and that may start overseas, but can money laundering as part of an H-1B threaten public safety inside the visa crime conspiracy. The case United States if offenders are not was the biggest human trafficking interdicted with aggressive and prosecution in Colorado history and coordinated law enforcement action. was investigated by the Departments DS agents and analysts observe, of State, Homeland Security, Labor, among others. detect, identify, and neutralize networks that exploit international travel vulnerabilities. DS global visa Source: U.S. Department of State, crime investigations and arrests have Bureau of Diplomatic Security. increased nearly 80 percent over the past five years.
12 | United States Department of State • 2013 Agency Financial Report ABOUT THE DEPARTMENT | MANAGEMENT’S DISCUSSION AND ANALYSIS
UNITED STATES DEPARTMENT OF STATE
1) The dotted lines on the Organizational Chart represent the Secretary of State’s shared authority with the USAID Administrator and the U.S. Permanent Representative to the U.S. Mission to the United Nations. 2) The Organizational Chart displays two positions as Deputy Secretary of State. The Deputy Secretary of State (D) serves as the principal deputy, adviser, and alter ego to the Secretary of State. The Deputy Secretary of State for Management and Resources (D–MR) serves as the Department’s Chief Operating Officer. 3) The Under Secretary for Management (M) serves as Chief Financial Officer of the Department.
2013 Agency Financial Report • United States Department of State | 13 MANAGEMENT’S DISCUSSION AND ANALYSIS | STRATEGIC GOALS AND GOVERNMENT-WIDE INITIATIVES
Strategic Goals and Government-wide Management Initiatives
Managing for Results: Planning, Budgeting, Managing, and Measuring
trategic Planning is a forward-looking management Performance management practices at the Department tool to set priorities, focus resources, strengthen of State enable programs to achieve U.S. foreign policy S operations and ensure all are working toward outcomes and promote greater accountability to the shared objectives. The first Quadrennial Diplomacy American people. Strategic planning and performance and Development Review (QDDR) provided broad management are rooted in the Department by the National recommendations to strengthen planning, budgeting, Security Strategy, the QDDR, and the Government and performance management for diplomacy and Performance and Results Modernization Act of 2010 development at the Department, as well as for USAID. (GPRAMA). Day-to-day, performance management is guided by the QDDR Managing for Results Framework. The QDDR articulated the need to elevate and improve strategic planning, to align budget requests to plans, to create better monitoring and evaluation systems, and to integrate and rationalize these components into a cohesive planning, budgeting, program, and performance management framework. From this review grew new planning processes that included increased stakeholder engagement and integrated mission-level planning; budgets built upon mission-level objectives to inform bureau-level and agency- level budget requests; measures of success and indicators that are more closely tied to plans and budgets; data driven reviews; technical assistance tools, such as program and Managing for Results Framework performance management handbooks; and a Department- wide evaluation policy that mandates rigorous evaluations TheManaging for Results Framework forms an evaluation and use of evidence for decision-making. and performance cycle for programs supporting the current Strategic Plan and influencing future strategic planning The Department’s new model for strategic planning differs efforts and associated budget requests. In short, all of these from the past by being more streamlined and integrated with efforts link strategic, long-term planning with budget budgeting, monitoring, and evaluation. Strategic planning planning; institutionalize evidence into planning, program and resource planning are now separate and sequential and project design, and budget decision-making; nurture processes. The Department sets objectives before determining innovative ways to address tight budgets and to prioritize the appropriate funding level, rather than combining strategic resources; and better inform taxpayers and Congress of our and resource planning. progress in carrying out the Department’s mission and goals.
14 | United States Department of State • 2013 Agency Financial Report STRATEGIC GOALS AND GOVERNMENT-WIDE INITIATIVES | MANAGEMENT’S DISCUSSION AND ANALYSIS
Joint State-USAID Strategic Goals
JOINT STATE-USAID STRATEGIC GOALS AGENCY PRIORITY GOALS Goal Number Goal Description Beginning in FY 2012, the Government Performance and SG1 Counter threats to the United States and the Results Act Modernization Act of 2010 (GPRAMA) required international order, and advance civilian security federal agencies to establish a set of agency priority goals around the world. (APGs) that reflect the highest priorities of agency leadership SG2 Effectively manage transitions in the frontline states. to be achieved in a two year timeframe. The Department and SG3 Expand and sustain the ranks of prosperous, stable USAID developed a set of eight outcome-focused APGs that and democratic states by promoting effective, would measure progress towards advancing major foreign accountable, democratic governance; respect for affairs and foreign assistance priorities. human rights; sustainable, broad-based economic growth; and well-being. In addition to quarterly reporting on the status of meeting SG4 Provide humanitarian assistance and support key milestones and performance targets for each APG, State disaster mitigation. and USAID APGs developed a process for conducting joint data-driven reviews of the FY 2012-2013 APGs that brought SG5 Support American prosperity through economic together goal leaders with the Deputy Secretary of State diplomacy. for Management and Resources and the USAID Deputy SG6 Advance U.S. interests and universal values through Administrator. Through the reviews, senior leadership public diplomacy and programs that connect the assessed performance data and identified successes and United States and Americans to the world. challenges as well as any actions necessary to ensure goal SG7 Build a 21st Century workforce; and achieve U.S. achievement. The State Department and USAID will publish Government operational and consular efficiency and a new set of FY 2015-2016 APGs in February 2014, along effectiveness, transparency and accountability; and with the new FY 2014-2017 Joint Strategic Plan and the secure U.S. Government presence internationally. FY 2015 Congressional Budget Justification.
Presently, the QDDR serves as the Joint Strategic Plan and sets institutional priorities and provides strategic guidance as a framework for the most effective allocation of resources. In FY 2013, the Department and USAID shared a Joint Strategic Goal Framework organized around seven strategic goals (see table above) against which funding is allocated. The Department uses the goals in its Joint Strategic Plan and Annual Performance Plan to inform annual budget decisions, longer-term investment planning, and human resource planning.
In FY 2013, using the QDDR’s recommendations, the Department began reviewing its Joint Strategic Plan and the accompanying strategic goals that address key U.S. foreign policy and national security priorities. The QDDR U.S. Secretary of State John Kerry delivers remarks at a Foreign Service Officer orientation at the U.S. Department of State in Washington, D.C., emphasizes engaging the interagency stakeholders and others March 29, 2013. Department of State to develop whole-of-government approaches to achieve foreign policy priorities.
2013 Agency Financial Report • United States Department of State | 15 MANAGEMENT’S DISCUSSION AND ANALYSIS | STRATEGIC GOALS AND GOVERNMENT-WIDE INITIATIVES
The table below identifies the Department’s FY 2012-2013 ■■ Global Health: The Global Health Initiative will seek APGs. Each APG contains hyperlinks to the Federal to improve the health of populations by supporting the performance website, www.performance.gov. creation of an AIDS-free generation, saving the lives of mothers and children, and protecting communities from AGENCY PRIORITY GOALS infectious diseases through USAID- and State-supported Agency Priority Goal performance.gov link programs. Afghanistan http://goals.performance.gov/goal_detail/ ■■ Economic Statecraft: Through our more than 200 DOSUSAID/401 diplomatic missions overseas, the Department of Democracy, Human http://goals.performance.gov/goal_detail/ State will promote U.S. exports in order to help Rights, and Good DOSUSAID/403 create opportunities for U.S. businesses. Governance ■■ Management: Strengthen diplomacy and development Climate Change http://goals.performance.gov/goal_detail/ by leading through civilian power. DOSUSAID/398 ■■ Food Security http://goals.performance.gov/goal_detail/ Procurement Reform: Strengthen local civil society and (primarily USAID) DOSUSAID/405 private sector capacity to improve aid effectiveness and Global Health http://goals.performance.gov/goal_detail/ sustainability, by working closely with our implementing (primarily USAID) DOSUSAID/406 partners on capacity building and local grant and contract allocations. Economic Statecraft http://goals.performance.gov/goal_detail/ (State only) DOSUSAID/399 The APGs align with four of the State-USAID Joint Strategic Management http://goals.performance.gov/goal_detail/ Goals. The four italicized APGs in the table below are DOSUSAID/400 highlighted in the report. Currently, there are no APGs Procurement Reform http://goals.performance.gov/goal_detail/ reflected for Strategic Goals one, four, and six. A crosswalk (USAID only) dosusaid/402 of the Joint Strategic Goals and APGs is contained in the table below. The full APG language, goal leads, collaborating A brief description of the eight Department of State-USAID partners, and additional information may be found on APGs follows. www.performance.gov. ■■ Afghanistan: With mutual accountability, assistance from CROSSWALK OF STATE-USAID JOINT STRATEGIC GOALS the United States and the international community will AND AGENCY PRIORITY GOALS continue to help improve the Government of the Islamic Strategic Goal Agency Priority Goal Republic of Afghanistan’s capacity to meet its goals and SG2: Effectively manage transitions Afghanistan maintain stability. in the frontline states.
■■ Democracy, Human Rights, and Good Governance: SG3: Expand and sustain the ranks Democracy, Human Rights, and of prosperous, stable and democratic Good Governance Advance progress toward sustained and consolidated states by promoting effective, democratic transitions in Egypt, Jordan, Lebanon, Climate Change accountable, democratic governance; Morocco, Tunisia, Libya, Bahrain, Yemen, Iran, Syria, respect for human rights; sustainable, Food Security (primarily USAID) and West Bank/Gaza. broad-based economic growth; and Global Health (primarily USAID) ■■ Climate Change: Advance low emissions climate resilient well-being. development. Lay the groundwork for climate-resilient SG5: Support American prosperity Economic Statecraft development, increased private sector investment in a low through economic diplomacy. (State only)
carbon economy, and meaningful reductions in national SG7: Build a 21st Century workforce; Management emissions trajectories through 2020 and the longer term. and achieve U.S. Government Procurement Reform operational and consular efficiency ■■ Food Security: Increase food security in Feed the Future (USAID only) initiative countries in order to reduce prevalence of and effectiveness, transparency and accountability; and secure U.S. poverty and malnutrition. Government presence internationally.
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The Department of State has reiterated its commitment to Following their formal release in 2014, the new strategic joint planning and State-USAID are utilizing the opportunity objectives—which will be tied to new State-USAID agency- afforded by developing an updated strategic plan to develop level strategic goals—will serve as the primary basis for strategic objectives and new APGs. Central to the planning performance measurement, strategic analysis, and decision process is the definition of outcome-oriented strategic making, and will be incorporated into the review process objectives developed to reflect U.S. global scope and impact. for the FY 2016 Budget. The Department of State and
Combating Postharvest Loss in the Fight Against Global Hunger
y the year 2050, the world population is expected to reach Future, the U.S. Government’s flagship initiative to reduce Bnine billion people. The increased population, coupled with global hunger and poverty, addresses postharvest loss by changing dietary demands, will require a 60 percent increase in improving the management of stored grains through better global agricultural production. Increasing food production is not technology and processing techniques; supporting basic enough. Roughly one-third of the food produced in the world market infrastructures; ensuring that proper granaries, cold goes to waste – 1.3 billion tons every year. In the fight against storage facilities, feeder roads, and processing facilities are global hunger, we must also address postharvest loss. available; and improving community preparedness for the shocks of unpredictable weather, catastrophes, and high grain Postharvest loss is collective food loss along the production price volatility. These efforts align with strategic goal number chain, from harvest and handling, to storage and processing, four, provide humanitarian assistance and support disaster to packing and transportation. In low-income countries, most mitigation, as well as: food is lost well before reaching the consumer. ■■ Focus on smallholder farmers and support countries The public and private sectors are working together to ensure in developing their own agriculture sectors to generate that farmers in developing countries have the necessary tools opportunities for economic growth and trade. and infrastructure to reduce postharvest loss. Feed the ■■ Support the food security priorities of our host countries and promote collaboration at the domestic and international levels.
■■ Help create economic opportunities in developing countries.
In February 2013, Assistant Secretary of State for Economic and Business Affairs Jose W. Fernandez delivered remarks on food security and minimizing postharvest losses at the U.S. Department of State in Washington, D.C.
For more information, please read the key policy fact sheet: http://www.state.gov/r/pa/pl/2013/204860.htm
Michelle Los Banos-Jardina, a public affairs officer from the Video remarks may be found at: U.S. Mission to the UN-Rome, meets with Bangladeshi citizens http://www.youtube.com/watch?v=21Cl-Vg-Flw while promoting multilateral efforts at addressing food security issues. State Magazine
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USAID will also use the Joint Strategic Plan process to identify a limited number of two-year APGs, allowing both the Department and USAID to focus on delivering measurable, quarterly progress toward the achievement of the strategic objectives.
For more information on the progress achieved towards APGs, see the Department’s quarterly results and data: http://www.performance.gov Full accomplishments of the APGs will be reported publicly in 2014.
GOVERNMENT-WIDE MANAGEMENT INITIATIVES AND CROSS-AGENCY PRIORITY GOALS The Department of State is also working on advancing the Administration’s Government-wide management agenda as outlined by the President during his two terms in office. Both management agendas are a path forward towards improving the Federal Government’s performance and accountability to the American people and working to create a Government that is more effective, efficient, innovative, and responsive. In July 2013, for his second term, the President released his second term management agenda focusing on:
■■ Delivering services smarter and faster, ■■ Increasing efficiency and saving money, and ■■ Supporting a growing economy and job creation.
For more information on the second term Management Agenda, view: http://www. whitehouse.gov/blog/2013/07/08/smarter- more-innovative-government-american-people
In FY 2013, the Department focused on the President’s first- term cross-agency Government-wide management initiatives:
■■ Acquisition: efforts include saving money on contracting, decreasing contracting risk, expanding strategic sourcing, and developing the acquisition workforce; ■■ Financial Management: efforts include reducing improper payments, managing property effectively, increasing reliability of financial information and improving debt collection; Designed by The DesignPond for the U.S. Department of State. To learn more about Connect 2022 initiatives, please visit http://www.state.gov/e/enr/c52654.htm.
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U.S. Secretary of State John Kerry kicks off a discussion of Africa’s Great Lakes region by the United Nations Security Council in New York City, July 25, 2013. Department of State
■■ Human Resources: efforts include hiring the best talent, a limited number of cross-cutting policy areas and are engaging the workforce, and expecting the best from identified in areas where increased cross-agency coordination employees; on outcome-focused areas is likely to improve progress. ■■ Information Technology: efforts include improving management of information technology investments, While some agency priority goals may be linked to CAP streamlining technology operations, and improving goals, most APGs will focus on core agency missions and are cybersecurity; not always tied directly to a CAP goal. For the Government to make progress on its CAP goals, OMB has identified ■■ Open Government: efforts include promoting contributing agencies or programs under each goal. In all transparency, fostering participation, and increasing cases, agencies and contributing programs that are responsible collaboration; for making progress on CAP goals will be required to ■■ Sustainability: efforts include reducing the government’s contribute to the development of the overall action plan and carbon footprint, developing agency sustainability plans, identify clearly their respective agency contributions to the and developing a comprehensive sustainability scorecard; overall goal. The CAP goal leader will work the Performance and Improvement Council, the corresponding Government-wide management council, OMB, and agencies to determine each ■■ Customer Service: efforts include offering more services agency’s contribution to the overall plan. online, creating a dashboard on citizen services, and adopting customer service best practices. Federal agencies participating in the CAP goals provide To work towards the Government-wide management quarterly performance results via the Federal performance initiatives, the Department is also a key participant in the website www.performance.gov. This website provides a Federal cross-agency priority (CAP) goals. The CAP goals window to the Government-wide efforts to centralize are a subset of Presidential priorities, and are complemented program information. This information will facilitate by other cross-agency coordination and goal-setting efforts. coordination across programs as well as improve public The CAP goals are outcome-oriented goals that cover understanding of the services delivered by the Government.
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U.S. Secretary of State John Kerry announces that Ambassador Martin Indyk will serve as the U.S. Special Envoy for Israeli-Palestinian Negotiations at the U.S. Department of State in Washington, D.C., July 29, 2013. Department of State
The website provides two main approaches to viewing FEDERAL CROSS-AGENCY PRIORITY GOALS information: by agency or area of focus. The website also Priority Goal performance.gov link includes the information required by law, such as: goal Closing Skills Gaps http://goals.performance.gov/node/38552 leader(s), contributing agencies, organizations, programs, targets, key milestones, major management challenges, Human Resources http://hr.performance.gov and plans to address these challenges. Exports http://goals.performance.gov/node/38576
Cybersecurity http://goals.performance.gov/node/39069 On the right is a hyperlinked table to the Federal CAP goals that the Department contributes to. Per the GPRAMA Sustainability http://goals.performance.gov/node/39076 requirement to address CAP goals in the agency Strategic Real Property http://goals.performance.gov/node/38574 Plan, the Annual Performance Plan, and the Annual Data Center Consolidation http://goals.performance.gov/node/38507 Performance Report, please also refer to www.performance.gov for more on the agency’s contributions to those goals and Strategic Sourcing http://goals.performance.gov/node/38590 progress, where applicable. Performance Improvement http://goals.performance.gov
Acquisition http://acquisition.performance.gov
Finance http://finance.performance.gov
Technology http://technology.performance.gov
Open Government Data http://opengov.performance.gov
Customer Service http://customerservice.performance.gov
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A brief description of the CAP goals to which the Department of State contributes follows.
■■ Closing Skills Gaps: This goal aims to close the skills gaps by 50 percent for three to five critical Federal Government occupations or competencies, and close additional agency-specific high risk occupation and competency gaps by September 30, 2013. ■■ Human Resources: Under this goal, agencies must attract, develop, and engage the most talented and diverse workforce possible in order to achieve the best for the American public. ■■ Exports: This goal was launched with the target of doubling U.S. exports over five years (by the end of 2014). While exports are fundamentally driven by the private sector, the Federal Government has an important role to play in helping U.S. exporters overcome the obstacles that make it more difficult to sell their goods and services abroad. ■■ Cybersecurity: Under this goal, Executive branch agencies established the goal of 95 percent implementation of the Administration’s priority cybersecurity capabilities by the end of FY 2014. These capabilities include strong authentication, trusted internet connections, and continuous monitoring. ■■ Sustainability: By 2020, the Federal Government aims to reduce its direct greenhouse gas emissions by 28 percent and reduce its indirect greenhouse gas emissions by 13 percent by 2020 (from 2008 baseline).
■■ Real Property: Under this goal, the Federal Government aims to maintain the FY 2012 square footage baseline of its office and warehouse inventory. ■■ Data Center Consolidation: Under this goal, the Federal Government aims to improve information technology service delivery, reduce waste, and save $3 billion in taxpayer dollars by closing at least 1,200 data centers by fiscal year 2015. ■■ Strategic Sourcing: Under this goal, the Federal Government aims to reduce the costs of acquiring common products and services by agencies’ strategic sourcing of at least two new commodities or services in both 2013 and 2014, yielding at least a 10 percent Designed by The DesignPond for the U.S. Department of State. To learn savings. more about 21st Century Statecraft, please visit www.state.gov/statecraft/.
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■■ Performance Improvement: To improve the Federal ■■ Acquisition: To improve acquisitions by the Federal Government’s performance, three key initiatives were Government, four key initiatives were implemented: save implemented: using goals to improve performance and money on contracting, decrease contracting risk, develop accountability, measuring and analyzing performance to acquisition workforce, and expand strategic sourcing. determine what works, and delivering better results using frequent, data-driven reviews.
Cyber Issues – A New Challenge to U.S. National Security
he State Department leads the U.S. Government’s United States and the international order, and advance civilian Tengagement with other countries to promote an security around the world. open, interoperable, secure, and reliable information and communications infrastructure that supports international trade In March 2013, Coordinator for Cyber Issues, Christopher Painter, and commerce, strengthens international security, and fosters testified before Congress on the Department’s role in countering free expression and innovation. In order to facilitate this mission, cyber threats. Over the past year, the Department has made the Department established the Office of the Coordinator for significant progress, including: Cyber Issues in February 2011 as a part of the QDDR process. ■■ Chairing the first meeting of the whole-of-government Its responsibilities include: coordinating global diplomatic U.S.-China Cyber Working Group in July 2013, including engagement, serving as liaison to the White House and Federal discussions on issues of mutual concern such as cyber- agencies, advising the Secretary and Deputy Secretaries on cyber enabled theft of intellectual property. issues, and acting as liaison to public and private sector entities. ■■ Negotiating U.S.-Russia bilateral cyber confidence building The Department’s cyber work spans the full spectrum of policy measures, announced at the G8 Summit in June. These issues to include security, the economy, freedom of expression, measures will help promote transparency and decrease and the free flow of information on the Internet. This aligns with the risks of conflict in cyberspace. the Department’s strategic goal one: counter threats to the ■■ Reaching a landmark consensus in the 2013 UN Group of Governmental Experts with fourteen other countries, including Russia and China, which affirmed the applicability of international law in cyberspace.
■■ Chairing whole-of-government cyber dialogues with Germany, Japan, and South Korea.
To learn more about the office, please visit: http://www.state.gov/s/cyberissues/ U.S. Coordinator for Cyber Issues Christopher Painter, left, of the U.S. Department of State, speaks at the opening of the U.S.-Japan Cyber Dialogue in Tokyo, May 9, 2013. ©AP Image A video of the testimony may be viewed at: http://www.youtube.com/watch?v=aGdeJk1OSis
22 | United States Department of State • 2013 Agency Financial Report STRATEGIC GOALS AND GOVERNMENT-WIDE INITIATIVES | MANAGEMENT’S DISCUSSION AND ANALYSIS
U.S. Secretary of State John Kerry and Under Secretary for Political Affairs Wendy Sherman oversee the first meeting of their interagency team before the kickoff negotiating session with their Russian counterparts focused on eliminating Syrian chemical weapons, September 12, 2013. Department of State
■■ Finance: To improve the financial management of ■■ Open Government Data: This goal aims to unlock the the Federal Government, four key initiatives were value of Government data by adopting a management implemented: reduce improper payments, increase approach that inventories and prioritizes the opening of reliability of financial information, manage property agency information resources through user engagement effectively, and collect money owed. across agencies, entrepreneurs, and the public. ■■ Technology: This goal aims to close the gap in effective ■■ Customer Service: Under this goal, each Executive branch technology between the private and public sectors, create agency is required to develop a customer service plan a more efficient Federal IT footprint, and more effectively that identifies implementation steps for their customer secure our Federal assets. service activities, including a “signature initiative” that uses technology to improve the customer experience. As its signature initiative, the Department will implement a Passport Card Application Pilot that demonstrates its ability to accept, adjudicate, and archive an online application for a passport card.
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Performance Summary and Highlights
he Department of State plays a unique role as the In FY 2013, the Department of State continued to increase agency delegated by the President for the conduct of analytical rigor in strategic planning and performance T America’s foreign affairs, just as the Department of management by focusing on agency-level, outcome-oriented the Treasury leads on economic issues and the Department performance measures that support the strategic goals and of Defense guides on defense issues. Because of the agency priority goals. The following Performance Summary increased interconnection between agencies, agencies that and Highlights section introduces some key achievements lead in some program areas support in others. Although and summarizes the results for selected key performance many Federal agencies have international mandates, goals. For the Department’s key performance results, the it is critical that they coordinate with the Department narrative describes each key indicator and its connection of State to ensure that our relationships are managed to the Joint Strategic Goal Framework, the FY 2013 effectively and our national objectives achieved efficiently. performance results (plus available data from prior years to As the President’s introduction to the National Security show the performance trend), the data source and validation Strategy makes clear, the ultimate goal is to “build and steps, as well as progress achievements. Joint State-USAID integrate the capabilities that can advance our interests.” performance and budget information will be featured in the Joint Summary of Performance and Financial Information, In an era of tight budgets and constrained resources, investing scheduled for release in February 2014. in civilian power makes sense. In fact, we see investments in civilian power – with its dedication to prevention and avoiding costlier efforts in the future – as a cost-effective necessity in times of fiscal restraint.
Selected Key Achievements and Performance Results
Following is a summary of key achievements for Strategic countries in crisis, promote regional stability, and protect Goals one, four, and six. Additionally, highlighted are civilians. performance results for APGs displaying illustrative performance trend data for Strategic Goals two, three, five, Key Selected Achievements: and seven. The APGs are listed under the applicable Joint ■■ Resident Legal Advisor (RLA) in Bangladesh passes State-USAID Strategic Goal. Performance results on the anti-money laundering (AML)/counterterrorism finance remaining APGs and the Cross-Agency Priority Goals can (CTF) Legislation: The terrorist threat exists around the be found on www.performance.gov. world and it directly and indirectly affects the United Strategic Goal 1: Counter threats to the United States States. Since well before 9/11, the Department has worked and the international order, and advance civilian with cooperating governments to counter that threat, security around the world. frequently helping them develop the domestic capacity to identify, investigate, and prosecute terrorist financers U.S. policy states that the security of U.S. citizens at home that fund the groups that threaten these governments and and abroad is best guaranteed when countries and societies our own. Bangladesh lacked AML and CTF legislation are secure, free, prosperous, and at peace. The Department of sufficient precision to adequately prosecute individuals and their partners seek to strengthen their diplomatic and for these crimes. Furthermore, the laws failed to meet development capabilities, as well as those of international accepted international standards, which, if not addressed, partners and allies, to prevent or mitigate conflict, stabilize potentially threatened Bangladesh’s fragile economic
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Deputy Secretary of State William Burns participates in the third ministerial meeting of the Global Counterterrorism Forum in Abu Dhabi, United Arab Emirates, December 14, 2012. Department of State
standing in the international community. The advice ■■ U.S. Trained Unit Defuses Improvised Explosive Device provided by the U.S.-funded RLA permitted Bangladesh in Pakistan: An Anti-Terrorism Assistance Program to amend its legislation to meet international standards trained Explosive Incident Countermeasures Bomb and avoid adverse economic consequences. Disposal Team (BDT) defused an improvised explosive device weighing around 11 kilos in Layari Karachi Sindh. ■■ Somali Diaspora in Europe: Somali-American imams and The Sindh BDT responded to the scene to assist the community activists are tackling the issue of radicalization Sindh Police investigators. Their investigation, along with and recruitment to violence among youth in their eyewitnesses’ information, revealed that the improvised sister communities in western Europe and Canada. A explosive device was contained in a cement block and Non-Governmental Organization (NGO) has started that the explosives were laced with ball bearings, nuts, an outreach and training tour which screens a thought- bolts and pieces of shaving blades. BDT inspector Sabir provoking documentary film highlighting the tragic Durrani, Sub-Inspector Abid, Assistant Sub-Inspector impact on families and communities of young Somalis Tahir, and Assistant Sub-Inspector Chan Zaib collected who left to fight with al-Shabaab. Participants have stated the forensic evidence from the crime scene and provided their appreciation for open and honest discussions on it to police for further investigation. the topic of radicalization to violence among their youth – something previously unaddressed and considered ■■ Framework for Elimination of Syrian Chemical taboo. Participants even requested follow-up activities, Weapons: On September 14, 2013, the United States including training in Somali on how to recognize signs of and Russia concluded the Framework for Elimination radicalization to violence. The implementing partner also of Syrian Chemical Weapons. Prior to the Framework, used the events to link local law-enforcement officials and the Asad regime did not publicly acknowledge that it social workers with trusted Somali community leaders possessed chemical weapons, despite having used chemical – strengthening relationships that had been virtually non- weapons as recently as August 2013 against its citizens. existent. To this date, the partner NGO has held about The international community, with assistance from the 12 community events across northern Europe, attracting United States, has made significant progress in declaring more than 2,300 attendees, over 1,400 of whom were the elements of Syria’s chemical weapons program to the women. Women were actively involved in the discussions, Organization for the Prohibition of Chemical Weapons even with males present, which is not typical.
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(OPCW), conducting OPCW-led inspection and reforms. Countries cannot advance from conflict to peace, verification activities at Syrian facilities, and developing fragility to strength, and poverty to prosperity without a plan for the safe and expeditious destruction of the inclusive, effective democratic institutions. Asad regime’s chemical weapons program by mid-2014. The international community has come together to AFGHANISTAN AGENCY PRIORITY GOAL establish a firm legal framework, through UN Security Council Resolution 2118 and related decisions by the Goal: With mutual accountability, assistance from the OPCW Executive Council, to ensure that this immense United States and the international community will continue undertaking is fulfilled in a transparent, expeditious, to help improve the Government of the Islamic Republic and verifiable manner—and within the ambitious but of Afghanistan’s (GIRoA) capacity to meet its goals and realistic timeline outlined in the Framework. The Syrian maintain stability. Bonn Conference commitments call government completed the disablement of its chemical on GIRoA to transition to a sustainable economy, namely weapons production and mixing/filling capabilities by improve revenue collection, increase the pace of economic November 1. Current efforts are focused on the timely reform, and instill a greater sense of accountability and removal of chemical weapons-related materials associated transparency in all government operations. Strengthen with the program for destruction outside of Syria. Afghanistan’s ability to maintain stability and development gains through transition. By September 30, 2013, U.S. ■■ New Global Arms Trade Treaty Adopted: After more Government assistance delivered will help the Afghan than three years of intense negotiations, a new global government increase domestic revenue level from sources Arms Trade Treaty was adopted in April 2013, and such as customs and electrical tariffs from 10 percent to opened for signature in June. The United States signed 12 percent of gross domestic product. it in September 2013. This Treaty brings new focus on an aspect of non-proliferation that frequently has been Progress towards Goal Achievement: Afghan domestic overshadowed by weapons of mass destruction: the often revenues rebounded in the second and third quarters of the illicit and destabilizing proliferation of conventional Afghan fiscal year (April 21 through September 21, 2013) weapons. As of now, 115 countries have signed the increasing by 23 percent over the disappointing first quarter Treaty and eight have ratified it. This Treaty is about and reaching levels similar to those observed 18-21 months keeping weapons out of the hands of terrorists and rogue prior. Despite the improvement since the first quarter, actors, reducing the risk of illicit international transfers revenue generation YTD still lags behind revenue collected of conventional arms that will be used to carry out the over the same period last year and falls short of targets set world’s worst crimes, promoting international peace by the International Monetary Fund. and security, and advancing important humanitarian goals. The Treaty is fully consistent with the rights of The majority of the growth came from increases in non- U.S. citizens, including those conferred by the Second tax and miscellaneous revenues. Revenues from extractive Amendment, and it does not limit a country’s sovereign industries though uneven and still a small contributor to right to conduct responsible arms transfers. overall revenue have increased by 71 percent through the Strategic Goal 2: Effectively manage transitions first nine months of the Afghan fiscal year. Both customs in the frontline states. and tax revenues, the primary drivers of domestic revenue, were extremely stable from the first to second quarter; second The United States’ close relationship with interagency to third quarter revenues saw a decline in customs revenue partners has enabled the United States to strengthen our of 12 percent and virtually no change in tax collection. national security and provide leadership in conflict areas, Almost 83 percent of customs revenue came from the major such as the Middle East, to promote democratic and political provincial hubs of Herat, Balkh, Kandahar, and Nimroz.
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Creative Solutions for Stabilizing Conflict
ounded in January 2012, the State Department’s Bureau opportunity to leverage local partnerships, and ability to test and Fof Conflict and Stabilization Operations (CSO) is a vital part evaluate innovative approaches. of the U.S. effort to more effectively help prevent conflict and support post-conflict nations recover. It advances U.S. national Top-priority initiatives include CSO efforts in Syria, Honduras, security by working with partners in priority countries to break and Burma. cycles of violent conflict, strengthen civilian security, and mitigate ■■ Syria: Providing moderate Syrian civilian opposition groups crisis. This aligns with the Department’s strategic goal two: with equipment and training to foster cohesiveness, build effectively manage transitions in frontline states. capacity for civil administration, and prepare for Syria’s Guided by local dynamics, strategic planning, and data-driven political transition. analysis, CSO works quickly with partners inside and outside ■■ Honduras: Reducing drug- and gang-related violence through government. The Department considers a number of criteria support for public security reform, civil society empowerment, when determining where to apply its effort and resources: and community-level violence reduction programs. opportunity for strategic impact within 18 months, national ■■ Burma: Supporting the peacebuilding efforts of the security priorities, development of women and youth leaders, government, minority populations, civil society and other stakeholders, and helping to build trust among parties to conflict, including through landmine risk education.
CSO has also taken action in Afghanistan, Kenya, Liberia, Belize, Central Africa, and South Sudan. Today, CSO is working in more than 20 countries to devise solutions to some of the world’s toughest challenges.
For more information, please read the key policy fact sheet: http://www.state.gov/documents/ organization/207703.pdf
Jason Lewis-Berry, State Department Field Representative, A video introduction to CSO may be found at: talks with Father Joseph in Obo, Central African Republic, http://www.state.gov/j/cso/releases/ as U.S. military advisors look on. Department of State other/2013/204020.htm
Illustrative Indicator for Strategic Goal 2 and Afghanistan APG:
Description of Indicator: This indicator measures Afghanistan’s domestic revenues as a percentage of gross domestic product. Actual values are based on reporting from the Budget Division of the Afghan Ministry of Finance and confirmed by the International Monetary Fund. The Government adjusted their fiscal calendar to begin on December 21st. As such the 1391* Afghan fiscal year only ran three quarters. We have adjusted our targets to reflect that change.
Target Met/Not Met: Target Not Met.
Data Source: Afghan Ministry of Finance, confirmed by the International Monetary Fund.
* The year of Prophet Muhammad’s migration to Medina (622 CE) is fixed as the first year of the Solar Hijri calendar, which is the official calendar of Afghanistan.
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Human Rights Reports for 2012 Released
■■ Emerging democracy and space for civil society in Burma.
■■ Threats to freedom of expression in the changing social media landscape.
■■ The continued marginalization of vulnerable groups.
The Human Rights Reports support the government- wide management initiative for open government and the Department’s strategic goal number three: expand and sustain the ranks of prosperous, stable, and democratic states by promoting effective, accountable, democratic governance; U.S. Secretary of State John Kerry delivers remarks on the release of the 2012 Human Rights Reports at the U.S. Department of State in Washington, D.C., respect for human rights; sustainable, broad-based economic April 19, 2013. Department of State growth; and well-being. As noted by Secretary Kerry in his remarks: “It is in our interest to promote the universal rights of n April 19, 2013, Secretary Kerry submitted the 2012 all persons. Governments that respect human rights are more OCountry Reports on Human Rights Practices (commonly peaceful and more prosperous. They are better neighbors, known as the Human Rights Reports) to the U.S. Congress. This stronger allies, and better economic partners.” report, now in its 36th year, is required by law to inform U.S. To further mark the release of the 2012 reports, Acting Government policymaking on human rights conditions around Assistant Secretary of State for Democracy, Human Rights the world. It is available online and serves as a reference for and Labor Uzra Zeya delivered remarks at the Foreign Press other governments, international institutions, non-governmental Center in Washington, D.C. on April 22, 2013. organizations, scholars, interested citizens, and journalists. To access the 2012 reports, please visit: The following were among the most noteworthy human rights http://www.state.gov/humanrightsreports/ developments in 2012:
■■ Shrinking space for civil society activism around the world. A video of Acting Assistant Secretary Zeya’s remarks may be viewed at: ■■ The ongoing struggle in the Middle East for democratic http://www.youtube.com/watch?v=tAK8Jj3D0rM change.
Strategic Goal 3: Expand and sustain the ranks of GLOBAL CLIMATE CHANGE APG prosperous, stable and democratic states by promoting effective, accountable, democratic governance; respect Goal: Advance low emissions climate resilient development. Lay for human rights; sustainable, broad-based economic growth; and well-being. the groundwork for climate-resilient development, increased private sector investment in a low carbon economy, and mean- Climate change is one of the century’s greatest challenges, ingful reductions in national emissions trajectories through and will be a priority of the U.S. diplomacy and develop- 2020 and the longer term. By the end of 2013, U.S. assistance ment work for years to come. Climate change can com- to support the development and implementation of Enhancing pound preexisting social stresses — including poverty, Capacity - Low Emission Development Strategies (EC-LEDS) hunger, conflict, mitigation, and the spread of disease — will reach 20 countries (from a baseline of zero in 2010). This and threatens to diminish the habitability of the planet. assistance will be strategically targeted and will result in strength-
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ened capacity for and measureable progress on developing and implementing LEDS by the end of the following year. Progress towards Goal Achievement: By the end of FY 2013, the EC-LEDS program achieved a major component of the APG with finalized Agreed Work Programs with 24 countries and U.S. assistance had reached 22 countries. This is a result of strong interest in the EC-LEDS program among partner countries, engaged leadership from Washington from the office of the Special Envoy for Climate Change at the Department of State and the Climate Change Coordinator at USAID, and a dedicated group of U.S. Government officials in the field at embassies and missions around the world.
Illustrative Indicator for Strategic Goal 3 and Global Climate Change APG: Members of the audience listen to the speaker at the 18th Session of the Conference of the Parties to the UN Framework Convention on Climate Change (COP-18) at the Qatar National Convention Center in Doha, Qatar, November 26, 2012. Department of State
Key Selected Achievements:
■■ Nearly 47,000 DR Congolese refugees repatriated to the DR of Congo from the Republic of the Congo. Description of Indicator: This indicator measures the number of countries in The Department supported programs to meet the which U.S. Government Technical Assistance for Enhancing Capacity for Low emergency needs of refugees and International Emissions Development strategies has been initiated. This two-year indicator Displaced Persons (IDPs) fleeing conflict in the East, was created in FY 2012 and data for previous years is unavailable. while supporting voluntary refugee and IDP returns Target Met/Not Met: Target Met. elsewhere in the country. Data Source: USAID missions in respective countries. ■■ The Department continued in FY 2013 to provide support to IDPs and conflict victims in Mali as an ongoing effort to assist with health, sanitation, and relief efforts provided Strategic Goal 4: Provide humanitarian assistance and in FY 2012. This included creating a medical/surgical team support disaster mitigation. at Gao hospital and supporting six health centers, which provided services including vaccinations and consultations The Department of State and USAID are the lead U.S. Govern- to over 7,500 patients and distributed food and essential ment Agencies that respond to complex humanitarian emergen- supplies to over 700,000 people and basic necessities to cies and natural disasters overseas. The United States gives more over 81,000 displaced persons. to those in crisis that any other country in the world. Humani- tarian assistance is provided on the basis of need, according Strategic Goal 5: Support American prosperity to principles of universality, impartiality, and human dignity. through economic diplomacy. Helping others in need is a core value of the American people. In FY 2013, the world witnessed new refugees flee violence The State Department’s economic and commercial diplomacy and drought in Northern Mali and fighting in Sudan, and activities promote economic prosperity and growth in the even more displacement in the conflict-ravaged eastern region United States and abroad. The Department’s efforts support of the Democratic Republic (DR) of Congo. the President’s National Export Initiative and its stated goal of
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doubling U.S. exports over five years (2010-2014, as compared export deal achieved, dispute resolved, or foreign policy to 2009 level) to support the creation of jobs and help the changed through Department advocacy. Overseas posts United States recover from a protracted severe global financial recorded 153 success stories in the FY 2013 fourth quarter: economic crisis. 100 export transactional deals completed, 22 commercial disputes settled, and 31 foreign economic policies changed. ECONOMIC STATECRAFT APG In addition, “outreach by missions” (not displayed) also exceeded the annual goal, with posts reporting 2,997 For FY 2013, the State Department exceeded its Economic outreach activities this quarter, for a cumulative total of Statecraft APG by 43 percent, achieving a cumulative total 16,016: 114 percent above the FY 2013 goal of 7,460 of 971 “success stories.” A success story is defined as an outreach activities.
The United States and the European Union – Building On Our Economic and Strategic Partnership
he United States and the European Union (EU) share The U.S. economic relationship with the EU is one of the Tfundamental values of freedom, democracy, human rights, largest and most complex in the world. The partnership and respect for law. We work together to advance energy security, accounts for one-third of total goods and services traded address global climate change, promote economic development, and nearly one-half of global economic output — contributing and deal with counterterrorism and security issues. A robust to economic prosperity on both sides of the Atlantic. The transatlantic economy undergirds America’s ability to address transatlantic partnership reinforces our strong economic, global challenges and to promote global development and political, and social ties and is a vital part of the Department’s prosperity. In the G8, G20, the World Trade Organization, and strategic goal number five to support American prosperity the Organization for Economic Cooperation and Development, through economic diplomacy. the United States and the EU work together to promote an open, In addition: transparent, and non-discriminatory trade and investment climate worldwide. ■■ The transatlantic economy is a powerful link between companies and producers, and businesses and employment opportunities.
■■ In his 2013 State of the Union Address, President Obama announced his intention for the United States to negotiate a Transatlantic Trade and Investment Partnership (TTIP) with the EU.
■■ TTIP offers an opportunity to boost economic growth and increase the more than 13 million American and European jobs already supported by transatlantic trade and investment.
For more information, please read the key policy U.S. Secretary of State John Kerry and French Foreign Minister fact sheet: Laurent Fabius take a walk on the grounds at the French Ministry of Foreign Affairs in Paris, September 7, 2013. http://www.state.gov/r/pa/pl/2013/211144.htm Department of State
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Goal: Through our more than 200 diplomatic missions overseas, the Department of State will promote U.S. exports in order to help create opportunities for U.S. businesses. By September 30, 2013, our diplomatic missions overseas will increase the number of market-oriented economic and commercial policy activities and accomplishments by 15 percent.
Progress towards Goal Achievement: In FY 2013, the Department exceeded this APG goal of increasing the number of export deals signed, disputes settled, and/or foreign policies changed through Department advocacy by Embassy staff to U.S. businesses overseas by 43 percent.
Illustrative Indicator for Strategic Goal 5 and Economic Statecraft APG:
Description of Indicator: This indicator measures the number of commercial and economic policy advocacy activities by embassy staff on behalf of U.S. businesses that led to the completion of transactional deals, investment dispute settlements, or resulted in foreign government economic policy changes. This two-year indicator was created in FY 2012 and data for previous years is unavailable.
Target Met/Not Met: Target Met.
Data Source: The Office of Consumer and Business Affairs in the Bureau of Economic and Business Affairs qualitative database.
Strategic Goal 6: Advance U.S. interests and universal values through public diplomacy and programs that connect the United States and Americans to the world.
The Department recognizes the central role of public diplomacy as a tool and an essential element of 21st Century statecraft, and has committed to renewing America’s engagement with the people of the world by enhancing mutual respect and understanding, and creating partnerships Designed by The DesignPond for the U.S. Department of State. To learn more about the Trans-Pacific Partnership initiatives, please visit http://www.state.gov/r/pa/pl/2013/214166.htm.
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aimed at solving common problems. Public diplomacy programs explain American society and culture and improve the understanding of American values.
Key Selected Achievements:
■■ Innovation Fund Supports U.S. Priorities: The Department’s Fund for Innovation in Public Diplomacy enables embassies around the world to carry out innovative public diplomacy initiatives that advance our nation’s priorities. In 2013, the Under Secretary for Public Diplomacy and Public Affairs funded 68 projects worldwide for a total of $3.3 million. Out of these projects, 31 focused specifically on public diplomacy outreach activities to advance our economic agenda
worldwide. Others focused on priorities such as disability U.S. Secretary of State John Kerry and the Executive Secretary rights and promoting open, inclusive, democratic states. of the Department John Bass chat in the Treaty Room For example, in 2013 the Innovation Fund supported an reception area adjacent to the Secretary’s office suite in the initiative in which Gallaudet University partnered with U.S. Department of State, Washington D.C., February 4, 2013. the University of the Americas in Panama City to establish Department of State a Latin American educational hub for deaf and hard of hearing students. In 2013, TechWomen matched 75 women from the ■■ Study Abroad Increases: The number of American Middle East and Africa with 150 American mentors at students studying abroad continues to grow steadily, leading U.S. technology companies, some of whom will up 3.4 percent from the previous year (2011/12) for a meet up in Morocco in the spring to continue working for current total of 283,332. The number of U.S. applicants increased opportunities for women. The 2013 EMPOWER for Bureau of Educational and Cultural Affairs (ECA) program convened about 75 foreign disability rights leaders high school exchange programs rose by 65 percent in from every geographic region in the United States and 2012. ECA’s EducationUSA advising network of over sent approximately 60 American stakeholders abroad to 400 centers reaches potential students in 170 countries demonstrate the United States’ leading role in advocating through in-person, outreach, and virtual platforms, for the rights of persons with disabilities. contributing to the academic year 2012/2013 record ■■ high of 819,644 international students in the United International Media Engagement: The Department States (Open Doors 2013). Over 22,000 students from continued to expand its capacity to reach international 206 countries and 104 U.S. higher education institutes audiences by engaging foreign broadcast, print and digital participated in EducationUSA’s 2013 Virtual College Fair. media through Regional Media Hubs, foreign language spokespeople and innovative uses of technology. The ■■ Exchanges Promote U.S. Policy: Educational, professional Department’s six Regional Media Hubs are positioned and cultural exchanges have become indispensable pillars strategically around the globe in major media markets to of strategic dialogues with Brazil, China, India, Indonesia, reach the most influential global and regional outlets. As Iraq, Russia, and other countries. It is almost impossible virtual extensions of the Department of State’s Spokes to conceive of a major bilateral initiative that does not person’s podium, the Hubs respond to the rapidly include an exchanges component. Dialogues with Brazil, moving international media environment to amplify China, and Indonesia have resulted in record numbers of the U.S. Government’s highest priority policy messages. participants in educational exchanges with those countries. Hub video teams traveled to support major policy
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events, capturing footage of U.S. officials in action for MANAGEMENT APG distribution to broadcast and digital media via satellite and the State Department’s online video distribution Goal: Strengthen diplomacy and development by leading platforms. Spokespeople amplified the President and through civilian power. By September 30, 2013, the State Secretary’s messages in Arabic, Farsi, Spanish, Urdu, Dari, Department and USAID will reduce vacancies in high and other languages to ensure accurate coverage of U.S. priority positions overseas to zero percent and 10 percent, policy in foreign media. In addition, media all over the respectively, and will reduce instances of employees not world accessed senior policymakers in Washington via meeting language standards to 24 percent and 10 percent, LiveAtState virtual press conferences, which use state-of- respectively. This goal also addresses the staffing of critical the-art technology to link foreign journalists and bloggers Consular posts to implement the Executive Order on with U.S officials for meaningful discussions. “Establishing Visa and Foreign Visitor Processing Goals.” ■■ Social Media: The Department continued to expand Progress towards Goal Achievement: At the end of FY 2013, its social media outreach by routinely scheduling global State’s highest overseas staffing priorities are Afghanistan, Iraq, online engagements in up to nine languages on a variety and Pakistan. In FY 2013 fourth quarter, the Department filled of social media—including Facebook, Google+, and 75 percent of the positions in Afghanistan, 79 percent in Iraq, Twitter—and establishing its official presence on new and 90 percent in Pakistan. Since the third quarter of FY 2012, platforms, such as Instagram. The Secretary of State the Department has consistently met its two-year target of participated in a Google+ Hangout for the first time ensuring that 80 percent of nonimmigrant visa applicants are and personally used Twitter and the State Department’s interviewed within three weeks of receipt of the application. DipNote blog as part of an effort to leverage technology The Department met all of its two-year and quarterly targets to advance our foreign policy objectives, bridge gaps filling of its high priority positions overseas and ensuring that between people, and engage with audiences around the 76 percent of the personnel assigned to language designated world. The State Department’s flagship social media sites positions (LDPs) meet or exceed the recommended language saw exponential growth across platforms. See Appendix D requirements. As more officers and specialist transition to new for the Department’s Websites of Interest. assignment, the LDP fill rate is expected to remain constant. Strategic Goal 7: Build a 21st Century workforce; and achieve U.S. Government operational and consular Illustrative Indicator for Strategic Goal 7 and Management APG: Nonimmigrant Visas efficiency and effectiveness, transparency and accountability; and secure U.S. Government presence internationally.
The Department provides citizen support throughout the cycle of life, from certifying the birth of U.S. citizens born abroad, to assisting families when a U.S. citizen dies overseas. The Department continues, in collaboration with the Department of Homeland Security and other agencies, to protect America’s homeland with improved technology and efficiency in visa and passport processing, smarter Description of Indicator: This indicator measures the percentage of screening technology for Government officials adjudicating nonimmigrant visa applicants that are interviewed within three weeks of the applications, and more secure U.S. travel documents (both receipt of their visa application. This two-year indicator was created in FY 2012 visas and passports). In support of this strategic goal, the and data for previous years is unavailable. For this indicator, quarterly data is Department is pursuing a multi-year hiring program to presented because it is not an annual cumulative measure. build the talented, diverse workforce needed to handle Target Met/Not Met: Target Met. our foreign policy priorities and strengthen diplomacy. Data Source: Bureau of Consular Affairs at the Department of State.
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Behind the scenes at U.S. Secretary of State John Kerry’s Google+ Hangout at the U.S. Department of State in Washington, D.C. Department of State
New Online Series Connects the United States to the World
n May 10, 2013, Secretary of State John Kerry kicked at the University of Virginia, where he outlined to Americans the Ooff “Hangout at State,” a new online series that brings impact that our involvement abroad has here at home. In this together people across national borders to discuss with U.S. discussion, the Secretary observed that “for about one percent Government leaders pressing foreign policy issues such as of our entire budget, a penny on the American dollar spent, we democracy promotion, human rights, counterterrorism efforts, invest in everything that we do in foreign policy.” economic development, climate change, and drug interdiction. Online series such as “Hangout at State” support the In this online conversation, moderated by NBC News Chief Department’s strategic goal six: advance U.S. interests and Foreign Affairs Correspondent Andrea Mitchell, Secretary Kerry universal values through public diplomacy and programs that answered questions from the American people on “The U.S. In connect the United States and Americans to the world. This the World: What’s In It for Us?” This live online event was the first series is broadcast on the State Department’s Google+ page, for a U.S. Secretary of State. The Secretary is dedicated to having YouTube channel, and at video.state.gov/live. a dialogue with the American people about the investments they make to ensure American leadership abroad – to protect our For more information, a video and transcript of national security interests, and to promote trade and investment this discussion may be viewed at: that fuels the American economy. The conversation builds on http://www.state.gov/secretary/ Secretary Kerry’s first major public address as Secretary of State remarks/2013/05/209273.htm
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Maximizing America’s Investment through Innovation, Evaluation, and by Meeting Management Challenges
The Department of State is continuing to make progress in implementing the Administration’s major management priorities. The following is a brief summary of initiatives undertaken by the Department in FY 2013 that support the Administration’s priorities, provide an update on the Department’s evaluation policy, and introduce the Management and Performance Challenges identified by the Office of Inspector General.
INNOVATION: HARNESSING DATA TO IMPROVE AGENCY RESULTS Economic Statecraft and the National Export Initiative
State’s Bureau of Economic and Business Affairs and the Bureau of Information and Resource Management are developing an integrated and interactive platform known as the Business Information Database System (BIDS), which will internally manage and then deliver to U.S. businesses information on Multilateral Development Bank and foreign government procurement opportunities. Through a public website and supported by a data sharing model with other U.S. Government agencies, U.S. businesses will be able to access the BIDS data, which will help them to pursue international business opportunities.
Driving Results through Effective Knowledge Management and Continuous Process Improvement: APQC, 1CA, and Cost Containment Dashboard
American Productivity and Quality Center (APQC). According to a recent survey conducted by the APQC the Department is at the forefront of global organizations that manage change and implement ubiquitous knowledge sharing capabilities, ahead of other private, public, and government organizations in enabling employees to find and share expertise and experience. In August 2013, the Department’s Office of eDiplomacy hosted nearly 30 representatives from 16 large corporations for a day of briefings on knowledge- sharing platforms. This was part of a five-month APQC study entitled “Transferring and Applying Critical Knowledge,” which focused on the origins of the Department’s Knowledge Extract from infographic designed by Tomorrow Partners, Berkeley, California, USA for the Global Partnership Initiative. The full infographic can be viewed at http://www.state.gov/s/partnerships/achievements/index.htm.
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Leadership strategy and demonstrated key programs such 1CA. The Bureau of Consular Affairs (CA) has implemented as SMART, Diplopedia, SearchState, Communities@State, 1CA: The Consular Leadership and Management Projectto Corridor, KLStats (online analytics), and Embassy Kabul’s support operations as a global, united team with a shared Portfolio Continuity project. The Department plans to mission and a collective bottom line. Using a management increase integration of the tools, develop “intelligent” framework based on proven management practices functions among them, and create a micro-tasking platform for including Balanced Scorecard, Project Management Body of the Department’s user community. The Department was the Knowledge, and Lean Six Sigma techniques, CA has created only government agency among the six “best practice partners” a management toolkit which enables employees to align that the APQC sponsors selected for an in-depth study. local practices with global priorities and increase process
Passport Services – World’s Premier Travel Document
he Department protects the lives and interests of U.S. Tcitizens overseas and strengthens U.S. border security through the vigilant management of the U.S. passport and visa program. Passport services provides accurate and secure U.S. passports, responds effectively to the needs of U.S. passport customers, and strengthens management and delivery capabilities. The Department currently operates 28 domestic passport agencies. In addition, there are currently more than 8,400 acceptance facilities nationwide that are designated to accept passport applications.
Additional facts: © iStock Image
■■ Passports and passport cards issued: In FY 2013, we issued The Department’s passport service operations support 13.5 million passports and passport cards. Over the seven strategic goal number seven: build a 21st Century workforce; fiscal years since FY 2007, we have issued a total of over and achieve U.S. Government operational and consular 100 million passports and passport cards. efficiency and effectiveness, transparency and accountability; and a secure U.S. Government presence internationally. ■■ Passports in circulation: More than 117 million valid U.S. Looking ahead, the Department is developing a new travel passports are in circulation (compared to 14 million in document called “The Next Generation Passport” as part of circulation in 1991). Today, about 37 percent of U.S. citizens the ongoing efforts to maintain and improve the Department’s have a valid passport. secure travel documents. ■■ Passport cards: May be used for entrance via land and sea from Canada, Mexico, the Caribbean, and Bermuda. For more information, please visit: Through September 2013, more than seven million http://travel.state.gov/ passport cards have been issued.
■■ Toll free number: 1-877-4USAPPT (1-877-487-2778); TTY/TDD 1-888-874-7793.
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efficiency. The toolkit provides managers at all levels of skill and experience with tools to build these practices into their daily operations.
Using the toolkit, the bureau has produced measureable results: ■■ Reduced the bureau’s annual cost of preparing the Annual Certification of Management Controls by approximately $250,000. ■■ Reduced wait times for most non-immigrant visa applicants by approximately 35 percent in Amman. ■■ Decreased average wait times by approximately 56 percent at the San Diego Passport Agency. ■■ Lowered the wait time for U.S. citizens requesting Consular Reports of Birth Abroad by 66 percent in just two months at Consulate General Nogales.
The management toolkit is complemented by an online U.S. Secretary of State John Kerry greets the Marine Security Guard detachment of U.S. Embassy in Baghdad, Iraq, March 24, 2013. innovation forum that solicits ideas and best practices from Department of State the field and a global metrics project that provides data to both headquarters and teams in the field to improve performance. The Department is garnering lessons learned PROGRAM EVALUATION: BUILDING A from this project and is working to expand this effort FOUNDATION FOR USE OF EVIDENCE beyond the CA bureau to other parts of the Department. IN DECISION-MAKING
Cost Containment Dashboard. The Bureau of Western Since the implementation of its new evaluation policy in Hemisphere Affairs (WHA) provides another example of February 2012, the Department has aggressively moved how the Department is using data to improve processes, drive forward on efforts to build a foundation for the use of efficiency, and identify potential cost savings. The WHA evaluation information to improve performance, to glean best bureau successfully managed its operations by requiring posts practices in programming, and to ensure effective stewardship to comply with dozens of cost containment initiatives as of resources overseas and here at home. The Department’s well as identify their own innovative ways to save money. It more than 30 domestic bureaus have been putting in has a cost containment dashboard which embassies update place long-term plans to evaluate the agency’s diplomatic, regularly to demonstrate what types of initiatives are being development, and management efforts. The Department’s implemented. If an initiative has been successful, that post focus since issuance of the policy has been capacity building is encouraged to share its experience with colleagues in the and training of Department personnel to effectively plan for, region. For instance, most posts have installed motion sensor execute, and manage evaluations. Implementation efforts in lighting; transitioned to more fuel efficient vehicles; increased FY 2013 included the roll-out of comprehensive training on video teleconferences; and centralized, regionalized, and an ongoing basis in the form of two Foreign Service Institute- consolidated administrative platform services. All posts have supported courses: “Managing Evaluations” and “Evaluation instituted cost savings within their management platform. Designs and Data Collection Methods”; a daylong Evaluation
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Institute that focused on effective practices in evaluations of and Procurement Management, Information Security and Department of State-funded efforts; and the establishment of Information Management, Financial Management, Military a Department-wide Evaluation Community of Practice that to Civilian-Led Transitions—Iraq and Afghanistan, Foreign numbers close to 300 staff. Assistance Coordination and Oversight, Public Diplomacy, Consular Operations, Leadership, and Rightsizing. MANAGEMENT CHALLENGES: PROVIDING AN INDEPENDENT ASSESSMENT OF THE AGENCY The OIG assessment may be found on the Other Information (OI) section of this report (see pages 122-128). In response to In the FY 2013 annual assessment, the Department’s OIG’s recommendations, the Department took a number of Office of Inspector General (OIG) identified the most corrective actions. Information on management’s assessment serious management and performance challenges for the of the challenge and a brief summary of actions taken and Department. These challenges were identified for the actions remaining may also be found in the OI section. following areas: Protection of People and Facilities, Contract
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Financial Summary and Highlights
The financial summary and highlights that follow provide an overview of the FY 2013 financial statements of the Department of State (the Department). The independent auditor, Kearney & Company, audited the Department’s Consolidated Balance Sheet for the fiscal years ending September 30, 2013 and 2012, along with the Consolidated Statements of Net Cost and Changes in Net Position, and the Combined Statement of Budgetary Resources1. The Department received an unmodified audit opinion on its FY 2013 financial statements. A summary of key financial measures from the Balance Sheet and Statements of Net Cost and Budgetary Resources is provided in the table below. The complete financial statements, including the independent auditor’s reports, notes, and required supplementary information, are presented in Section II: Financial Information.
Summary Table of Key Financial Measures (dollars in billions)
Summary Consolidated Balance Sheet Data FY 2013 FY 2012 % Change Fund Balances With Treasury $ 47.6 $ 44.2 8% Investments, Net 17.4 16.9 3% Property and Equipment, Net 17.6 16.1 9% Cash, Receivables, and Other Assets 2.2 2.4 (8)% Total Assets $ 84.8 $ 79.6 7% Accounts Payable $ 2.4 $ 2.8 (14)% After-Employment Benefit Liability 20.6 19.9 4% International Organizations Liabilities 1.9 1.4 36% Other Liabilities 1.5 1.3 15% Total Liabilities $ 26.4 $ 25.4 4% Unexpended Appropriations 38.2 35.3 8% Cumulative Result of Operations 20.2 18.9 7% Total Net Position $ 58.4 $ 54.2 8% Total Liabilities and Net Position $ 84.8 $ 79.6 7%
Summary Consolidated Statement of Net Cost Data Total Cost and Loss on Assumption Charges $ 32.1 $ 33.2 (3)% Less: Total Revenue (7.0) (6.7) 5% Total Net Cost $ 25.1 $ 26.5 (5)%
Summary Combined Statement of Budgetary Resources Data Unobligated Balance Brought Forward $ 17.5 $ 13.1 34% Appropriations 31.5 31.7 (1)% Spending Authority from Offsetting Collections 10.4 10.3 1% Other Resources (Adjustments) 1.2 2.4 (50)% Total Budgetary Resources $ 60.6 $ 57.5 5%
1 Hereafter, in this section, the principal financial statements will be referred to as: Balance Sheet, Statement of Net Cost, Statement of Changes in Net Position, and Statement of Budgetary Resources.
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To help readers understand the Department’s principal Retirement and Disability Fund (FSRDF) were greater than financial statements, this section is organized as follows: benefit payments; the excess is required to be invested for future benefit payments. Other Assets decreased $139 million ■■ Balance Sheet: Overview of Financial Position, due to a reduction in advances and prepayments made in ■■ Statement of Net Cost: Yearly Results of Operations, FY 2013. Receivables increased by $43 million primarily ■■ Statement of Changes in Net Position: Cumulative as a result of an increase in non-Federal miscellaneous receipts Overview, and from a change in the Value Added Tax receivable. ■■ Statement of Budgetary Resources: Smart Investments Largest 11 Real Property Projects – FY 2013 for America’s Future, (dollars in millions) ■■ Financial Management Systems Summary, and Project Name Amount ■■ Limitation of Financial Statements. Islamabad, Pakistan $ 208 Kabul, Afghanistan (New Annex Facility and Housing) 159 Balance Sheet: Rabat, Morocco 77 Overview of Financial Position Baghdad, Iraq (Sather Air Base Project) 72 Abuja, Nigeria (Annex) 69 The Balance Sheet provides a snapshot of the Department’s Vientiane, Laos 54 financial position. It displays amounts of future economic Santo Domingo, Dominican Republic 51 benefits owned or available for use (Assets), amounts owed Helsinki, Finland 49 (Liabilities), and residual amounts (Net Position) at the end Cotonou, Benin 48 of the fiscal year. London, United Kingdom 46 Assets. The Department’s total assets were $84.8 billion at Rio Grande Flood Control System, United States and Mexico 26 September 30, 2013, an increase of $5.2 billion or 7 percent TOTAL $ 859 over the 2012 total. Fund Balances with Treasury were up over $3 billion due to an increase in unpaid obligations Property and equipment increased by $1.5 billion due and recoveries over the prior year. Investments consist to capital improvements to diplomatic facilities and the almost entirely of U.S. Government securities held in construction of new overseas embassy compounds. The table the FSRDF; government agencies are, for the most part, above shows the largest real property projects in FY 2013 precluded from making any other type of investment. that account for $859 million of this increase. Investments were up $480 million because contributions and appropriations received to support the Foreign Service Fund Balances with Treasury, Investments, and Property and Equipment comprise 97 percent of total assets for 2013 and 2012. The six-year trend in the Department’s total assets is presented in the figure below.
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Many Heritage Assets, including art, historic American furnishings, rare books and cultural objects, are not reflected in assets on the Department’s Balance Sheet. Federal accounting standards attempt to match costs to accom- plishments in operating performance, and have deemed that the allocation of historical cost through deprecia- tion of a national treasure or other priceless item intended to be preserved forever as part of our American heritage would not contribute to performance cost measurement. The standards require only the maintenance cost of these heritage assets be expensed, since it is part of the govern- Health Programs, Diplomatic and Consular Programs, and ment’s role to maintain them forever in good condition. the Working Capital Fund. The International Organizations All of the embassies and other properties on the Secretary Liability increased by $484 million or 34 percent, based on of State’s Register of Culturally Significant Property, how- assessments the Department received. The six-year trend in ever, do appear as assets on the Balance Sheet, since they the Department’s total liabilities is presented in the figure are used in the day-to-day operations of the Department. above.
Liabilities. The Department’s total liabilities were Ending Net Position. The Department’s net position, $26.4 billion at September 30, 2013, up $968 million, comprised of unexpended appropriations and the cumulative 4 percent, between 2012 and 2013. The liability for future results of operations, increased 8 percent between 2012 and benefits payments to retired foreign service officers included 2013. Unexpended appropriations were up by 8 percent or in the After-Employment Benefit Liability comprises $2.9 billion, primarily due to increases in appropriations 78 percent of total liabilities. Total After-Employment still available in the Overseas Buildings Operations fund, Benefits Liability was up $673 million, 3 percent, due to an up $998 million, the Migration and Refugee Assistance increase in participation in the Foreign Service Retirement fund, up by $724 million, and the International Narcotics and Disability Fund resulting from changes in the benefit Control and Law Enforcement fund, up $633 million. plan and actuarial assumptions. Also included in this total Cumulative Results of Operations were up $1.3 billion, are other after-employment benefits for Foreign Service primarily due to resources used to purchase property Nationals. Accounts Payable decreased by $423 million, and equipment, which are capitalized on the Balance 15 percent. This change is due to the decrease in delivered, Sheet rather than present in Net Cost as expenses. but not paid for goods and services received to support International Narcotics and Law Enforcement, Global Statement of Net Cost: Yearly Results of Operations
The Statement of Net Cost presents the Department’s net cost of operations by strategic goal. Net cost is the total program cost incurred less any exchange (i.e., earned) revenue. The presentation of program costs by strategic goal is based on the Department’s current Strategic Plan, established pursuant to the Government Performance and Results Act (GPRA) of 1993, the GPRA Modernization Act of 2010, and the Department’s Quadrennial Diplomacy and Development Review. As discussed in the Strategic Goals and Government-wide Management Initiatives section of the MD&A, the Department established new strategic goals for FY 2013. Costs that could not be readily assigned to one
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of the seven strategic goals were assigned to the category The figure above illustrates the comparative results of “Executive Direction and Other Costs.” Prior year costs from operations by strategic goal, as reported on the Statement of FY 2012 were reclassified for comparability. The total net cost Net Cost. As shown, net costs associated with strategic goals of operations in FY 2013 equaled $25.1 billion, a decrease one (Countering Security Threats and Advancing Global of $1.4 billion (5 percent) from FY 2012. This reduction of Security) and three (Expanding and Sustaining Stable States net costs was mainly due to automatic spending reductions through Democratic Principles) represents the largest net required by the Budget Control Act of 2011 (BCA). costs in FY 2013 – a combined $16.1 billion (64 percent). These net costs are comparable; though down slightly, The six-year trend in the Department’s net cost of from FY 2012 amounts for these two goals – $17.3 billion operations from FY 2008 through FY 2013 is presented (65 percent). in the figure below. The $7.3 billion (41 percent) overall increase since FY 2008 generally reflects costs associated with new program areas related to countering security EARNED REVENUES threats and sustaining stable states, as well as the higher Earned revenues occur when the Department provides cost of day-to-day operations. goods or services to another Federal entity or the public. The Department reports earned revenues regardless of whether it is permitted to retain the revenue or remit it to Treasury. Revenue from other Federal agencies must be established and billed based on actual costs, without profit. Revenue from the public, in the form of fees for service (e.g., visa issuance), is also without profit. Consular fees are established on a cost recovery basis and determined by periodic cost studies. Certain fees, such as the machine readable Border Crossing Cards, are determined statutorily. The FSRDF receives revenue from employee/employer contributions, a U.S. Government contribution, and investment interest. Other revenues come from International Cooperative Administrative Support Services billings and Working Capital Fund earnings.
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U.S. Secretary of State John Kerry hosts the PEPFAR 10th Anniversary Celebration at the U.S. Department of State in Washington, D.C., June 18, 2013. Department of State
Tenth Anniversary of PEPFAR Marked at Department of State
n June 18, 2013, in a tribute to the success of the President’s OEmergency Plan for AIDS Relief (PEPFAR) program, Secretary Kerry announced that the one-millionth baby would be born HIV-free Earned revenues totaled $7 billion for the fiscal year ending due to PEPFAR-supported prevention of mother-to-child transmission September 30, 2013, and are depicted, by program source, programs. At an event marking PEPFAR’s tenth anniversary, the in the figure above. The major sources of revenue were from Secretary stated that there are 13 countries at the programmatic consular fees ($3.3 billion or 47 percent), reimbursable “tipping point” in their AIDS epidemic – the point where the annual agreements ($1.5 billion or 22 percent) and ICASS earnings increase in adults on treatment is greater than the number of annual ($0.8 billion or 11 percent). These revenue sources totaled new adult infections. To further mark the program’s anniversary, $5.6 billion (80 percent). Overall, revenue increased by Ambassador Eric Goosby, U.S. Global AIDS Coordinator, participated 4 percent – from $6.7 billion in FY 2012 to $7 billion in a live Google+ Hangout on PEPFAR and the battle against HIV from in FY 2013. The net increase is primarily a result of an the U.S. Department of State in Washington, D.C. on June 20, 2013. increase in property disposition gains, an increase in fees Global health programs such as PEPFAR support the Department’s from machine readable visas, and a decrease in reimbursable strategic goal four: provide humanitarian assistance and support revenue from International Narcotics Law Enforcement disaster mitigation. The Department’s investments in global health program. protect Americans at home and abroad, strengthen fragile or failing states, promote social and economic progress, and support the rise Statement of Changes in Net Position: of capable partners. These global health efforts are a signature of Cumulative Overview American leadership.
The Statement of Changes in Net Position identifies all Over the past decade, new HIV infections have declined nearly financing sources available to, or used by, the Department to 19 percent globally, and AIDS-related mortality has decreased by support its net cost of operations and the net change in its 26 percent since its peak in 2005. In sub-Saharan Africa, progress financial position. The sum of these components, Cumulative has been even more marked, with new infections down by 33 percent Results of Operations and Unexpended Appropriations, over the past decade, and AIDS-related mortality declining by equals the Net Position at year-end. The Department’s 32 percent since its peak in 2005. net position at the end of FY 2013 was $58.4 billion, For more information on this program, please visit: a $4.2 billion (8 percent) increase from the prior fiscal http://www.pepfar.gov/ year. This change resulted from a $2.9 billion increase in Unexpended Appropriations and a $1.3 billion increase in Cumulative Results of Operations. A video of the Ambassador’s online discussion may be viewed at: http://www.youtube.com/watch?v=yo0biTpXbNE
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Statement of Budgetary Resources: ($0.3 billion) and other resources ($764 million). As a result Smart Investments for America’s Future of the automatic spending reductions required by the BCA, appropriations, which comprised 55 percent of FY 2012 The Statement of Budgetary Resources (SBR) provides data budgetary resources, accounted for 52 percent in FY 2013. on the budgetary resources available to the Department and the status of these resources at the fiscal year-end. The SBR BUDGETARY POSITION FOR STATE OPERATIONS displays by budgetary section the key budgetary equation: Total Budgetary Resources equals Total Status of Budgetary The FY 2013 budget for the Department of State operations, Resources. post-sequester reductions as required by the Budget Control Act of 2011 (Public Law 112-25, as amended), totaled The Department’s budgetary resources consist primarily of $16.9 billion, including appropriations for Administration of appropriations, spending authority from offsetting collections, Foreign Affairs ($13.3 billion), contributions to international unobligated balances brought forward from prior years, and organizations and international peacekeeping activities other resources. The figure below highlights the budgetary ($3.4 billion), international commissions ($113 million), trend over the fiscal years 2008 through 2013. As illustrated, and related programs ($145 million). This total included total resources have increased by $21.8 billion (56 percent) $4.5 billion Overseas Contingency Operations (OCO) over the six-year time frame. This change resulted mainly funding for temporary and extraordinary requirements in from increases in unobligated balances brought forward Iraq, Afghanistan, and Pakistan, and included a small amount ($11.2 billion or 177 percent since FY 2008), offsetting for activities outside the Frontline States. The Department collections ($3.2 billion or 44 percent), and appropriations received OCO funding for Diplomatic and Consular ($6.5 billion or 26 percent). Over this period, the non- Programs (D&CP); Worldwide Security Protection; Embassy appropriated resources – composed of offsetting collections, Security, Construction, and Maintenance; Educational unobligated balances brought forward, and recoveries of prior- and Cultural Exchanges; Contributions to International year unpaid obligations – represent an increasing proportion Organizations; Office of Inspector General; and Conflict and of total budgetary resources (from 37 percent in FY 2008 to Stabilization Operations. The Department’s FY 2013 budget 49 percent in FY 2013). A comparison of the two most recent was funded by the Further Continuing Appropriations Act, years shows a $3.1 billion (5 percent) increase in total resources 2013 (Division F, Public Law No. 113-6). since FY 2012. This change resulted mainly from increases in prior unobligated balances ($4.4 billion) and offsetting In addition to appropriated funds, the Department collections ($0.1 billion), net of decreases in appropriations continues to use revenue from user fees – Machine Readable Visa fees, Enhanced Border Security Program fees, the Western Hemisphere Travel Surcharge, and others – for the Border Security Program. The revenue from these fees supports program requirements to protect American citizens and safeguard the nation’s borders.
Appropriations for Administration of Foreign Affairs constitute the Department’s core operational funding. They support the people and programs that carry out U.S. foreign policy and advance U.S. national security, political, and economic interests at more than 270 posts in over 180 countries around the world. These funds also build, maintain, and secure the infrastructure of the American diplomatic platform, from which most U.S. Government agencies operate overseas.
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For FY 2013, the Department’s principal operating authority also contributed $386 million to capital security appropriation – D&CP – was funded at $9.6 billion. Total cost-sharing reimbursements for the construction of new D&CP funding included $555.5 million to support operations diplomatic facilities. of the U.S. Mission in Iraq; $1.5 billion for activities in Afghanistan; $149.7 million for activities in Pakistan; The Educational and Cultural Exchange Programs (ECE) $2.3 billion for the Worldwide Security Protection (WSP) appropriation was funded at $583 million. Aligned with program to strengthen security for diplomatic personnel and public diplomacy efforts, these strategic activities engaged facilities under threat from terrorism – this WSP level includes foreign audiences to develop mutual understanding and funding transfers to support the Department’s Increased build foundations for international cooperation. The funding Security Proposal (ISP) in response to the Accountability included $325 million for academic programs of proven value, Review Board (ARB) report on Benghazi, Libya; and such as the J. William Fulbright Scholarship Program and $517.6 million for public diplomacy programs to counter English language teaching. It also included $194 million for extremist misinformation and secure support for U.S. policies professional and cultural exchanges, notably the International abroad. The funding also included resources to further agency- Visitor Leadership Program and Citizen Exchange Program. specific initiatives on rightsizing the U.S. Government’s overseas presence and Federal real property asset management. Looking ahead, the Department’s FY 2014 budget request supports comprehensive American engagement and The Department’s Information Technology (IT) Central implements the vision of U.S. global leadership articulated Fund for FY 2013 investments in IT was $251.6 million. in the National Security Strategy released in May 2010. This Fund included $61.8 million from the Capital Investment The resources requested strengthen core elements of America’s Fund (CIF) appropriation and $189.8 million in revenue civilian power and provide the Department of State with from Expedited Passport fees. Investment priorities included the tools it needs to advance America’s interests and values modernization of the Department’s global IT infrastructure worldwide. For FY 2014, the President’s Budget Request for to assure reliable access to foreign affairs applications and the Department is $15.9 billion. As in FY 2013, the request information and projects to facilitate collaboration and is separated into two components: base, or “enduring,” and data sharing internally and with other agencies. OCO, which addresses the extraordinary and temporary costs associated with operations in Iraq, Afghanistan, and The Embassy Security, Construction, and Maintenance Pakistan. The enduring portion of the request, $14.4 billion, (ESCM) appropriation was funded at $2.8 billion. includes resources to support worldwide core national This funding helped provide U.S. missions overseas with security and foreign policy priorities. The request for D&CP secure, safe, and functional facilities and includes funding is $8.5 billion, including $2.2 billion for WSP to meet transfers to support the Department’s ISP in response to new challenges in preventing terrorist attacks at our posts, the ARB report on Benghazi. The funding also supported building on the lessons learned from the attack at Benghazi. maintenance and repairs of the Department’s real estate The request provides $76.9 million for CIF investments in portfolio, which exceeds $74 billion in replacement value and IT infrastructure and collaborative tools. The request for includes over 21,850 properties. ESCM funding included ESCM is $2.6 billion, including resources for design and/or $670 million to support compound security projects, and the construction of secure facilities and Marine Security Quarters, Capital Security Construction program, which was expanded additional site acquisitions, as well as security upgrades for in FY 2012 to include the maintenance cost sharing program. compounds at high risk and soft targets. Further, the request Other agencies with overseas staff under Chief of Mission provides $562.7 million for ECE to sustain the exchanges component of public diplomacy. The core budget represents the Department’s ongoing investment necessary to advance For more information, a video about Diplomacy America’s security and economic interests around the world. and the language of art and design may be viewed at: http://video.state.gov/en/ The Department’s request includes $1.5 billion for OCO. video/2761488330001 Of this amount, $1.2 billion supports diplomatic and security
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operations while $49.6 million is required to sustain activities Operations. The Department also implements funds from of the Special Inspectors General in Iraq, Afghanistan, the Economic Support Fund (ESF) account. and Pakistan. These expenses are being incurred as civilian employees continue take on more responsibility in the An important aspect of the Department’s FY 2013 budget is Frontline States and are expected to be phased out over time the Overseas Contingency Operations (OCO) component. as these countries rebuild and take responsibility for their own OCO funds the extraordinary, but temporary, costs of the security. Separating extraordinary and temporary spending Department and USAID operations in Iraq, Afghanistan, from core ongoing expenses makes the Department’s budget and Pakistan, as well as other extraordinary contingency costs more transparent and reduces overlap by aligning spending in in places like Yemen, Mali, and Somalia. The Department’s the Frontline States with the Department of Defense, which Foreign Assistance portion of the FY 2013 budget for also receives OCO funding. OCO totaled $3.3 billion in Foreign Military Financing, International Narcotics Control and Law Enforcement, To maximize our efficiency, the Department continues to Migration and Refugee Assistance, Nonproliferation, focus on improving the way it does business and concentrate Antiterrorism, Demining, and Related Programs, and on reforms recommended in the Quadrennial Diplomacy and Peacekeeping Operations. Development Review. Following this blueprint for change, the Department seeks innovative solutions and builds cross-agency The Democracy Fund appropriation totaled $109 million partnerships to achieve measurable results. In sum, the FY 2014 in FY 2013; the funds were split, however, between the request will provide funding for diplomatic operations, Department and USAID. The Department was allocated programs, and initiatives that constitute an integrated strategy $64 million to promote democracy in priority countries where for renewing America’s global leadership and advancing vital egregious human rights violations occur, democracy and U.S. national interests. With these resources, America can, human rights advocates are under pressure, governments are must, and will continue to lead in the 21st Century. not democratic or are in transition, where there is growing demand for human rights and democracy, and for programs promoting Internet Freedom. BUDGETARY POSITION FOR FOREIGN ASSISTANCE The FY 2013 Foreign Military Financing (FMF) The FY 2013 Department of State Foreign Assistance post- appropriation totaled $6 billion, of which $1 billion is sequester budget totaled $17.7 billion. Foreign Assistance designated as OCO-related and $5 billion supports core programs enable the U.S. Government to promote stability in programs. FMF furthers U.S. interests around the world key countries and regions, advance economic transformations, by training and equipping coalition partners and friendly confront security challenges, respond to humanitarian crises, foreign governments that are working to achieve common and encourage better governance, policies, and institutions. security goals and shared burdens in joint missions. While The Department’s FY 2013 Foreign Assistance budget was also the greatest proportion of FMF in FY 2013 was allocated funded by the Further Continuing Appropriations Act, 2013. to Israel, Egypt, Iraq, Jordan, and Pakistan, the remaining funds were allocated strategically within regions to support Foreign Assistance programs under the purview of the ongoing efforts to incorporate the most recent North Atlantic Department of State are the Democracy Fund; Foreign Treaty Organization (NATO) members into the organization, Military Financing; Global Health Programs; the Global support prospective NATO members and Coalition partners, Security Contingency Fund; International Military Education and assist critical Coalition partners in Afghanistan. and Training; International Narcotics Control and Law Enforcement; International Organizations and Programs; In FY 2013, the portion of the Global Health Programs Migration and Refugee Assistance; U.S. Emergency Refugee (GHP) appropriation managed by the Department totaled and Migration Assistance; Nonproliferation, Antiterrorism, $5.4 billion. This is the primary source of funding for the Demining, and Related Programs; and Peacekeeping President’s Plan for AIDS Relief (PEPFAR), the largest effort
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made by any nation to combat a single disease. These funds security situations were most dire and where U.S. resources are used to achieve prevention, care, and treatment goals while were used in tandem with host-country government strategies also strengthening health systems, including new health care to maximize impact. INCLE resources were also targeted to worker goals, and emphasizing country ownership to build countries having specific challenges in establishing a secure and a long-term sustainable response to the epidemic. Similar to stable environment, including Afghanistan, Pakistan, Mexico, prior years, the majority of the funds ($3.2 billion) continued Lebanon, Haiti, South Sudan, Liberia, and Iraq. Finally, to be allocated to the Africa region where the HIV/AIDS INCLE-funded programs helped to reduce the flow of drugs to epidemic is the most widespread. There was also a $1.6 billion the United States and address instability in the Andean region. contribution to the Global Fund to Fight AIDS, Tuberculosis, and Malaria. The FY 2013 International Organizations and Programs appropriation totaled $331.1 million. It provided international For FY 2013, the Department did not receive a direct organizations voluntary contributions that advanced U.S. appropriation for the Global Security Contingency Fund strategic goals by supporting and enhancing international appropriation, nor has it transferred funds into the account consultation and coordination. This approach is required yet. The account is used to support the Department’s new in transnational areas where solutions to problems are best three year pilot initiative which streamlines the way the U.S. addressed globally, such as protecting the ozone layer or Government provides assistance to military forces and other safeguarding international air traffic. In other areas, the United security forces responsible for conducting border and maritime States can multiply its influence and effectiveness through security, internal security, and counterterrorism operations, as support for international programs. The largest contributions well as the government agencies responsible for such forces in in FY 2013 were made to the United Nations Children’s Fund, response to emergent challenges or opportunities. As decisions the United Nations Development Program, and the United are made to fund particular programs, the Departments Nations Population Fund. of State and Defense will transfer funds to the account for implementation. In FY 2013, the Migration and Refugee Assistance (MRA) appropriation totaled $2.7 billion, of which $1.1 billion The FY 2013 International Military Education and Training was OCO and $1.6 billion was for core programs. These (IMET) appropriation totaled $100.4 million. IMET is a funds provided humanitarian assistance and resettlement key component of U.S. security assistance that promotes opportunities for refugees and conflict victims around the regional stability and defense capabilities through professional globe. MRA is an essential component of U.S. foreign military training and education. IMET students from policy, reflecting America’s dedication to assisting those in allied and friendly nations receive valuable training and need. In FY 2013, MRA contributed to key international education on U.S. military practices and standards. IMET is humanitarian organizations and non-governmental an effective mechanism for strengthening military alliances organizations to address international humanitarian needs and international coalitions critical to the global fight and refugee resettlement in the United States. A significant against terrorism. amount of funding was provided for assistance to Syrian refugees throughout the Middle East and North Africa. The International Narcotics Control and Law Enforcement (INCLE) appropriation for FY 2013 totaled $1.9 billion, The FY 2013 U.S. Emergency Refugee and Migration of which $932 million is OCO-related and $1 billion is Assistance (ERMA) appropriation totaled $25.8 million. for core programs. INCLE supports bilateral and global ERMA serves as a contingency fund from which the President programs critical to combating transnational crime and illicit can draw in order to respond effectively to humanitarian crises threats, including efforts against terrorist networks in the in an ever-changing international environment. Funds provided illegal drug trade and illicit enterprises. INCLE programs in FY 2013 ensured the United States was able to respond strengthen law enforcement jurisdictions and institutions. quickly to urgent and unexpected refugee and migration needs. In FY 2013, many INCLE resources were focused where
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The Nonproliferation, Antiterrorism, Demining, and Related Programs (NADR) appropriation in FY 2013 totaled $674.9 million, of which $114.6 million is OCO- related and $560.3 million supported core programs. NADR funding is used to support U.S. strategic and humanitarian priority efforts, especially in the areas of nonproliferation and disarmament, export control, and other border security assistance; global threat-reduction programs, antiterrorism programs; and conventional weapons destruction.
The Peacekeeping Operations (PKO) appropriation totaled $364.4 million, of which $76.9 million was OCO and $287.5 million supported core programs. PKO is used to enhance international support for voluntary multinational stabilization efforts, including international missions not supported by the United Nations, and U.S. conflict-resolution activities. In FY 2013, the PKO program supported ongoing requirements for the Global Peace Operations Initiative, security sector reform in the newly independent Republic financial reporting, internal controls, and interagency of South Sudan, as well as multinational peacekeeping and administrative support cost sharing. This summary presents regional stability operations, particularly in Somalia and Mali. the Department’s financial management systems strategy and how it will improve financial and budget management The Department of State’s FY 2014 budget request across the agency. This overview also contains a synopsis of for Foreign Assistance is currently under congressional critical projects and remediation activities that are planned or consideration. The request is for $16.6 billion, of which currently underway. These projects are intended to modernize $15.8 billion supports core programs and another and consolidate Department resource management systems. $855 million is for OCO funding. Limitation of Financial Statements The following chart presents the use of budgetary funds representing FY 2013 total obligations incurred, as reflected Management prepares the accompanying financial statements on the SBR. The figure below shows how resources were spent to report the financial position and results of operations for in 2013, by category. As illustrated, the categories contractual the Department of State pursuant to the requirements of services $14.1 billion (36 percent), grants and fixed charges Chapter 31 of the U.S. Code Section 3515(b). While these $13.7 billion (35 percent), and personnel compensation and statements have been prepared from the books and records of benefits $7.2 billion (19 percent) represent nearly 90 percent the Department in accordance with FASAB standards using of the agency’s spending. OMB Circular A-136, Financial Reporting Requirements, revised, and other applicable authority, these statements Financial Management Systems Summary are in addition to the financial reports, prepared from the same books and records, used to monitor and control the Section III: Other Information of this Agency Financial Report budgetary resources. These statements should be read with provides an overview of the Department’s current and future the understanding that they are for a component of the financial management systems framework and systems critical U.S. Government, a sovereign entity. to effective agency-wide financial management operations,
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Management Assurances and Other Financial Compliances
Management Assurances
he Department’s Management Control policy is comprehensive and requires all Department managers to establish cost-effective systems of management controls to ensure U.S. Government activities are managed effectively, efficiently, economically, and with T integrity. All levels of management are responsible for ensuring adequate controls over all Department operations.
Federal Managers’ Financial Integrity Act
he Department of State’s management is responsible for As a result of its inherent limitations, internal control over Testablishing and maintaining effective internal control and financial reporting, no matter how well designed, cannot provide financial management systems that meet the objectives of the absolute assurance of achieving financial reporting objectives Federal Managers’ Financial Integrity Act of 1982 (FMFIA). and may not prevent or detect misstatements. Therefore, even if The Department conducted its assessment of the effectiveness the internal control over financial reporting is determined to be of internal control over the efficiency and effectiveness of effective, it can provide only reasonable assurance with respect operations and compliance with applicable laws and regulations to the preparation and presentation of financial statements. in accordance with OMB Circular A-123, Management’s Projections of any evaluation of effectiveness to future periods are Responsibility for Internal Control. Based on the results of this subject to the risk that controls may become inadequate because evaluation, the Department can provide reasonable assurance of changes in conditions or that the degree of compliance with that its internal control over the effectiveness and efficiency of the policies or procedures may deteriorate. operations and compliance with applicable laws and regulations and financial management systems met the objectives of FMFIA These systems of internal controls are also being used to support as of September 30. our stewardship over the American Recovery and Reinvestment Act (Recovery Act) spending by the Department. Our assessments In addition, management is responsible for establishing and of internal controls, along with senior managers’ assurance maintaining effective internal control over financial reporting, statements and our review for improper payments for Recovery which includes safeguarding of assets and compliance with Act activities, allow the Department to provide reasonable applicable laws and regulations. The Department conducted its assurance that the key accountability objectives of the Recovery assessment of the effectiveness of internal control over financial Act are being met and that significant risks to meeting Recovery reporting in accordance with Appendix A of OMB Circular Act accountability objectives are being mitigated. A-123. Based on the results of this assessment, the Department can provide reasonable assurance that its internal control over financial reporting as of June 30 was operating effectively and the Department found no material weaknesses in the design or operation of the internal control over financial reporting. John F. Kerry Further, subsequent procedures and testing through September 30 Secretary of State did not identify any material changes in key financial reporting December 16, 2013 internal controls.
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Departmental Governance the Chief Information Officer, the Deputy Chief Financial Officer, the Deputy Legal Adviser, the Director for the Office of Budget and Planning, and the Director for MANAGEMENT CONTROL PROGRAM the Office of Overseas Buildings Operations. Individual assurance statements from Ambassadors assigned overseas The Federal Managers’ Financial Integrity Act (FMFIA) and Assistant Secretaries in Washington, D.C. serve as the requires agencies to establish internal control and financial primary basis for the Department’s FMFIA assurance issued systems that provide reasonable assurance that the following by the Secretary. The assurance statements are based on objectives are achieved: information gathered from various sources including the ■■ Effective and efficient operations, managers’ personal knowledge of day-to-day operations and existing controls, management program reviews, and ■■ Compliance with applicable laws and regulations, and other management-initiated evaluations. In addition, the Office of Inspector General, the Special Inspector General ■■ Financial reporting reliability. for Iraq Reconstruction, the Special Inspector General for Afghanistan Reconstruction, and the Government It also requires that the head of the agency, based on an Accountability Office conduct reviews, audits, inspections, evaluation, provide an annual Statement of Assurance and investigations that are considered by management. on whether the agency has met this requirement. OMB Circular A-123, Management’s Responsibility for Internal Control, implements the FMFIA and defines management’s responsibility for internal control in Federal agencies.
The Circular A-123 also requires that the agency head provide a separate assurance statement on the effectiveness of internal control over financial reporting (ICOFR). This is an addition to and a component of the overall FMFIA assurance statement. Appendix A of Circular A-123 was added to improve governance and accountability for internal control over financial reporting in Federal entities similar to the internal control requirements for publicly-traded companies contained in the Sarbanes-Oxley Act of 2002.
The Secretary of State’s 2013 Annual Assurance Statement for FMFIA and ICOFR is provided on the previous page. We have also provided a Summary of Financial Statement Audits and Management Assurances as required by OMB Circular A-136, Financial Reporting Requirements, revised, later in this report’s Other Information section.
The Department’s Management Control Steering Committee (MCSC) oversees the Department’s At the close of FY 2012, the Department reported a management control program. The MCSC is chaired material weakness in internal controls related to the by the Comptroller, and is comprised of ten Assistant Educational and Cultural Affairs Summer Work Travel Secretaries [including the Inspector General (non-voting)], (SWT) program. Particularly, the Department had
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insufficient oversight to fully ensure the health, safety, and welfare of the SWT program participants. Prior to and throughout FY 2013, the Department took extensive action to address the weaknesses in the SWT program. Some of the FY 2013 accomplishments in improving the SWT program included the Department significantly increasing staff to provide greater supervision of the program, conducting 542 on-site visits in 39 States, providing robust monitoring and surveying to participants, and taking other administrative and substantive actions to ensure compliance. Completion of these accomplishments, in conjunction with the significant improvements made to the program prior to FY 2013, has demonstrated the Department’s commitment to remediating issues with the program. For this reason, the Department elected to downgrade the material weakness to a significant deficiency.
The Senior Assessment Team (SAT) provided oversight during FY 2013 for the ICOFR program in place to regulations. To that end, the Department has dedicated meet Appendix A requirements. The SAT reports to the considerable resources to administer a successful management MCSC and is comprised of 15 senior executives from control program. It is the Department’s policy that any bureaus that have significant responsibilities relative to the organization with a material weakness or significant deficiency Department’s financial resources, processes, and reporting, must prepare and implement a corrective action plan to and the Office of the Legal Adviser. An executive from the fix the weakness. The plan, combined with the individual Office of Inspector General is a also non-voting member assurance statements and Appendix A assessments, provide the of the SAT. In addition, the Department’s Office of framework for monitoring and improving the Department’s Management Controls employs an integrated process to management controls on a continuous basis. Management perform the work necessary to meet the requirements of will continue to direct focused efforts to resolve issues for Appendix A, Appendix C (regarding the Improper Payments all significant deficiencies in internal control identified by Information Act), and the FMFIA. The Department management and auditors. employs a risk-based approach in evaluating internal controls over financial reporting on a multi-year rotating basis, which has proven to be efficient. Due to the broad Federal Financial Management knowledge of management involved with the Appendix A Improvement Act assessment, along with the extensive work performed by the Office of Management Controls, the Department The Federal Financial Management Improvement Act of evaluated issues on a detailed level. The FY 2013 Appendix 1996 (FFMIA) requires that Federal agencies’ financial A assessment did not identify any material weaknesses in management systems provide reliable financial data that the design or operation of the internal control over financial complies with Federal system requirements, the standards reporting. The assessment did identify several significant promulgated by the Federal Accounting Standards Advisory deficiencies in internal control over financial reporting. Board, and the U.S. Government Standard General Ledger (USSGL) at the transaction level. The Department’s management controls program is designed to ensure full compliance with the goals, objectives, and To assess conformance with FFMIA, the Department uses requirements of the FMFIA and various Federal laws and FFMIA implementation guidance issued by OMB (January
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requirements of the FFMIA. The Department will work with the Independent Auditor in FY 2014 and beyond to resolve these issues, and to assess compliance based upon the recently issued Appendix D to OMB Circular A-123. Appendix D provides a revised compliance model that entails an outcome- based approach to assess FFMIA compliance.
Federal Information Security Management Act
The Federal Information Security Management Act of 2002 (FISMA) requires Federal agencies to develop, document, and With USAID power meters above them, Pakistani Minister implement an agency-wide program to provide information of Power and Water Khawaja Asif explains to U.S. Secretary security for the information and information systems that of State in Islamabad how the equipment saves power for support the operations and assets of the agency. The Office of utilities and the government, August 1, 2013. Department of State Inspector General (OIG) performs an annual evaluation of the Department’s compliance with FISMA requirements. The Department of State’s 2013 FISMA and Privacy Management 2009 Memorandum to Executive Department Heads, Report highlights how the Department continues to apply Chief Financial Officers, and Inspectors General), results a layered approach of security risk management through of OIG and GAO audit reports, annual financial statement the application of multiple levels of protection in a manner audits, the Department’s annual Federal Information that is commensurate with the risk and impact facing the Security Management Act (FISMA) Report, and other Department’s information and information systems. It also relevant information. The Department’s assessment also notes the improvements based on earlier recommendations relies upon evaluations and assurances under the Federal from the OIG. Managers’ Financial Integrity Act of 1982 (FMFIA), including assessments performed to meet the requirements During FY 2013, the Department continued to enhance of OMB Circular A-123 Appendix A. Particular importance its comprehensive risk-based and cost effective information is given to any reported material weakness and material security program through extensive engagement with non-conformance identified during these internal control stakeholders throughout the Department and the assessments. The Department has made it a priority to implementation of specific and tangible efforts that have meet the objectives of the FFMIA. enhanced the maturity level of a number of programs and procedures including: In its Report on Compliance and Other Matters, the ■■ Independent Auditor reported that the Department’s Continuous Monitoring Program: financial management systems did not substantially ●● At our annual PortfolioStat review meeting, the comply with certain Federal financial management systems Federal Chief Information Officer (CIO) stated requirements, standards promulgated by the Federal that due to the Department of State’s leadership in Accounting Standards Advisory Board, and the USSGL the implementation of continuous monitoring, the at the transaction level. The Department appreciates that Department should play a key role in integrating the the Independent Auditor has noted certain weaknesses in National Institute of Standards and Technology’s Risk our financial management systems. In our assessments and Management Framework and the Department of evaluations, the Department identified similar weaknesses Homeland Security’s (DHS) Continuous Diagnostics but consider them deficiencies versus substantial non- and Mitigation (CDM) methodologies for the entire conformances relative to substantial compliance with the Federal Government.
52 | United States Department of State • 2013 Agency Financial Report MANAGEMENT ASSURANCES AND OTHER FINANCIAL COMPLIANCES | MANAGEMENT’S DISCUSSION AND ANALYSIS
●● The Department’s CIO signed the Memorandum of moderate impact enclaves. Common controls were Understanding with DHS to allow the Department to introduced for the first time allowing security controls be an “early adopter” of new CDM software tools that to be properly inherited by the major systems residing will be provided through the DHS contract awarded on OpenNet. Documentation was provided to the in August 2013. These tools will allow the Department OIG at the end of May 2013. Accreditation teams are to monitor our network and react to threats and active reviewing documents with the planned signing of the attacks in real time. letter of authorization by the CIO in February 2014. ●● The Bureau of Information Resource Management, ●● Major emphasis this year has been placed on the Office of Information Assurance (IRM/IA) Bureau of the Comptroller and Global Financial implemented a contract to determine the Department’s Services’ A&A. CDM requirements to accelerate the procurement and ●● An additional $1.5 million of FY 2013 funds are being implementation of the tools being provided by DHS. applied to accelerate the Department’s A&A effort. ●● The Bureau of Diplomatic Security (DS) acquired ■■ Plans of Action and Milestones: a database scanning tool. The installation and integration of the tool is ongoing. ●● Following the lead by Consular Affairs, IRM/IA is purchasing an enterprise license of ComplyVision. ■■ Security Configuration Management: This tool will provide the Department with a data ●● The Bureau of Information Resource Management repository for accreditation and authorization (IRM) and DS are working closely to further the documentation and Plans of Action and Milestones Department’s cybersecurity posture. (POA&M). All Department of State security documents and POA&Ms will be managed through ●● IRM and DS have synchronized the process of this software tool. This tool will be integrated with updating the applicable sections of Department policy the Department’s information technology asset to remove conflicts and inconsistent guidance. management tracking system to provide a seamless ●● DS has purchased and is installing a database view of the Department’s security portfolio. monitoring tool which focuses on database security ●● The Department expended extraordinary resources to rather than just network security. address two issues the OIG noted earlier: Assessment ●● IRM has completed a Continuity of Operations Plan and Authorization (A&A) and Contingency Planning. that is inclusive of the financial systems. A&A efforts are currently underway and an additional Government FTE will be hired to address the OIG’s ●● IRM/IA is in the process of hiring a full-time bureau concerns regarding Contingency Planning and emergency action coordinator for IRM. Continuity of Operations. ●● DS has provided three seats at the DS Foreign ●● Plans of Action and Milestones now include the Affairs Cybersecurity Center to the Deputy CIO estimated funding resources required to resolve the for Operations to allow for improved cybersecurity weakness. cooperation. IRM is working to staff these seats in the near future. In the FISMA report and the Inspector General’s Assessment ■■ Risk Management and Security Authorization: of Management and Performance Challenges (located in ●● During the past year, $1.8 million was spent to the Other Information section of this AFR), the OIG cites complete an Assessment and Authorization (A&A) weaknesses to enterprise-wide security they consider to be a of the OpenNet general support systems. OpenNet significant deficiency in accordance with OMB memorandum is the Department’s unclassified computer network. M-14-04. While the Department acknowledges the OpenNet evaluation was divided into high and weaknesses identified by the OIG, it does not agree that
2013 Agency Financial Report • United States Department of State | 53 MANAGEMENT’S DISCUSSION AND ANALYSIS | MANAGEMENT ASSURANCES AND OTHER FINANCIAL COMPLIANCES
any of the findings, either individually or collectively, rises to American Recovery and the level of a significant deficiency that would require treating Reinvestment Act the matter as an additional material weakness in accordance with OMB M-14-04. The OMB memorandum defines a Of the $787 billion appropriated “significant deficiency…as a weakness in an agency’s overall for the American Recovery and information systems security program...that significantly Reinvestment Act (ARRA) restricts the capability of the agency to carry out its mission of 2009, the Department of or compromises the security of its information, information State received $562 million for systems, personnel, or other resources, operations, or assets. projects and $2 million for Office In this context, the risk is great enough that the agency of Inspector General oversight. head and other agencies must be notified and immediate or The Department used ARRA funds near-immediate action must be taken.” The Department’s to create and save jobs, repair and modernize domestic management has defined corrective actions for the applicable infrastructure crucial to the safety of American citizens, and weaknesses cited by the OIG, and will address each in a expand consular services offered to American taxpayers. prioritized manner based upon the risk and impact posed to Details of the Department’s ARRA implementation are the Department’s security posture. Through these activities, posted on the website at http://www.state.gov/recovery/. the Department continues to improve its information system documentation, policies, and procedures and to mitigate Construction Projects. In prior years, the Department information security risks and weaknesses. completed a number of construction projects using ARRA funds. For example, the Department expanded its network Other Regulatory Requirements of passport facilities to address public demand in previously underserved areas of the country ($15 million); opened new The Department is required to comply with a number of classrooms and installed new signage at the National Foreign other legal and regulatory financial requirements, including Affairs Training Center ($5 million); and completed a the Improper Payment Elimination and Recovery Act, the domestic Enterprise Server Operations Center to provide for Debt Collection Improvement Act, and the Prompt Pay Act. high availability, redundancy, disaster recovery, and capacity The Department determined that none of its programs are for the Department to achieve its goals in support of the risk-susceptible for making significant improper payments Federal Data Center Consolidation Initiative ($120 million). at or above the threshold levels set by OMB, and collected 100 percent of amounts identified for recovery during the In FY 2013, environmental studies and master planning past two fiscal years. In addition, the Department does not are near completion for the site identified as the preferred refer a substantial amount of debts to Treasury for collection, potential location of the Diplomatic Security Foreign Affairs and has successfully paid vendors timely 98 percent of the Security Training Center ($70 million). This will provide a time for the past three fiscal years. A detailed description of centralized location that supports security-related training these compliance results and improvements is presented in for Department and other U.S. Government staff posted the Other Information section of this report. at U.S. embassies. Per OMB’s direction, the Department is also conducting an alternate site analysis.
54 | United States Department of State • 2013 Agency Financial Report MANAGEMENT ASSURANCES AND OTHER FINANCIAL COMPLIANCES | MANAGEMENT’S DISCUSSION AND ANALYSIS
International Boundary and Water Commission Information Technology and Cybersecurity. In prior (IBWC). ARRA funding ($220 million) accelerated the years, ARRA funding ($132 million) was used to deploy IBWC’s modernization program by 20 years, remediating cybersecurity, information technology, and advanced risks identified by geo-physical analysis suggesting that telecommunications equipment. This equipment increased 60 percent of the levee system in high-priority areas was the integrity and resiliency of the Department’s network, deficient. The IBWC projects are raising or making structural improved its ability to counter emerging threats, and improvements to 237 miles of levees to ensure adequate significantly expanded its unclassified remote access protection and meet the Federal Emergency Management and telework capabilities. No new activities took place Agency’s standards. At September 30, 2013, the construction during FY 2013. is reported at 95 percent complete. The remaining IBWC work is expected to be fully completed by mid-year 2014. Office of Inspector General. In prior years, funding ($2 million) permitted the Department’s OIG to initiate 26 projects to assess Department and IBWC activities funded by ARRA. All OIG activities related to this funding concluded in July 2012 and no new activities took place during FY 2013.
2013 Agency Financial Report • United States Department of State | 55 The inside lobby of the Harry S Truman Building of the Department of State in Washington, D.C. where flags of every country with which the
U.S. Government has diplomatic relations are on display. The DesignPond PRINCIPAL FINANCIAL STATEMENTS | FINANCIAL SECTION
SECTION II: Financial Section
Message from the Comptroller
am pleased to present the Fiscal Year (FY) In support of these efforts, the Bureau of the 2013 financial statements on behalf of the Comptroller and Global Financial Services IDepartment of State. The Department is continues to prudently prioritize, manage, firmly committed to delivering the highest and implement vital investments in modern standard of financial accountability and resource management systems that facilitate reporting in support of our critical foreign smart and standardized enterprise-wide affairs mission. This Agency Financial Report financial business processes and accurate and (AFR) and the financial statements in the timely financial data. We have emphasized our following pages represent the rigor and commitment to meet our day-to-day global resolve to transparently communicate and financial services in disbursing, accounting, demonstrate our effective management over James L. Millette and compensation for the Department and the Department’s finite financial resources. other customer agencies by our commitment It is an informative and useful snapshot in time. More to ISO-9001 certified operations and the Capability Maturity importantly, it embodies and reflects the immense work, Model Integration (CMMI) standard for financial systems drive for continuous improvement, and dedication displayed development. At the same time, we strive to balance and every day by our financial and management professionals in meet the growing audit and compliance requirements driven more than 270 locations and 180 countries around the globe. by OMB, Treasury, and the Congress. In doing so, we have worked to strengthen our ability to work with partners across As highlighted in the Secretary’s AFR message, the United the Department’s global platform to ensure an environment States is faced with a broad range of foreign policy challenges of sound internal controls and strong performance on the that demand our attention: whether it’s bringing stability to annual external audit process and financial statements. the Middle East and North Africa, deepening the rebalance To that end, I am pleased to report that the Department to Asia, completing the transition in Afghanistan, tackling has received an unmodified (“clean”) audit opinion on climate change, or promoting good governance and human its FY 2013 and 2012 Financial Statements, and with no rights. The scale and complexity of Department activities material weaknesses identified by the Independent Auditor. and corresponding financial management requirements are As noted by the Independent Auditor, improvements were immense. Secretary Kerry has challenged us to improve made in financial reporting and accounting for Foreign our efficiency and effectiveness in tackling these and other Service National after-employment benefits. At the same challenges as we work to make the smart foreign policy time, we remain committed to strong corporate governance investments now that increase America’s prosperity and and internal controls. The Department maintains a robust help avoid much costlier burdens down the road. system of internal controls that are validated by senior
2013 Agency Financial Report • United States Department of State | 57 FINANCIAL SECTION | MESSAGE FROM THE COMPTROLLER
leadership and administered by the Bureau of the Comptroller stewardship. It has been a concerted and dedicated effort by and Global Financial Services. For FY 2013, no material all stakeholders involved, including the Department’s Office weaknesses in internal control were identified by senior of Inspector General and the Independent Auditor, Kearney leadership. A prior material weakness regarding the effective & Company. The Department fully recognizes that there oversight of the Summer Work Travel Program for Student are a number of items noted in the AFR that will require traveling to the United States for temporary and seasonal our continued attention, diligence, and improvement. We employment was downgraded to a significant deficiency are committed to addressing them. Given the global and given additional oversight and outreach steps taken by the complex nature of our financial operations, there will always Department over the last two years. In addition, no material be new concerns and opportunities for improvement. We weaknesses in internal control over financial reporting were are up to the task and resolved to continue to be efficient identified by the Senior Assessment Team, the Management and effective stewards of the Department’s resources in Control Steering Committee or senior leadership. As a support of our vital foreign affairs mission and programs. result, the Secretary was able to provide reasonable assurance over the effectiveness of the Department’s overall internal Sincerely, control and the internal control over financial reporting in accordance with the Federal Managers’ Financial Integrity Act. I would like to express my sincere thanks and appreciation to the Department’s financial management professionals, whose consistent efforts to plan, execute, and account for the James L. Millette Department’s resources, often in the most challenging global Comptroller environments, is the foundation for any success and financial December 16, 2013
58 | United States Department of State • 2013 Agency Financial Report OIG TRANSMITTAL | FINANCIAL SECTION
United States Department of State
The Inspector General
December 16, 2013
INFORMATION MEMO FOR THE SECRETARY
FROM: OIG – Steve A. Linick
SUBJECT: Independent Auditor’s Report on the U.S. Department of State 2013 and 2012 Financial Statements (AUD-FM-14-10)
An independent certified public accounting firm, Kearney & Company, P.C., was engaged to audit the consolidated financial statements of the U.S. Department of State (Department) as of September 30, 2013 and 2012, and for the years then ended; to provide a report on internal control over financial reporting; to report on whether the Department’s financial management systems substantially complied with the requirements of the Federal Financial Management Improvement Act of 1996 (FFMIA); and to report any reportable noncompliance with laws, regulations, contracts, and grant agreements it tested. The contract required that the audit be performed in accordance with U.S. generally accepted government auditing standards and Office of Management and Budget audit guidance.
In its audit of the Department’s 2013 and 2012 financial statements, Kearney & Company found
• the consolidated financial statements present fairly, in all material respects, the financial position of the Department as of September 30, 2013 and 2012, and its net cost of operations, changes in net position, and budgetary resources for the years then ended, in conformity with accounting principles generally accepted in the United States of America;
• no material weaknesses1 in internal control over financial reporting; and
1 A material weakness is a deficiency, or combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected, on a timely basis.
UNCLASSIFIED
2013 Agency Financial Report • United States Department of State | 59 FINANCIAL SECTION | OIG TRANSMITTAL
UNCLASSIFIED
• instances of reportable noncompliance with laws, regulations, contracts, and grant agreements tested, including instances in which the Department’s financial management systems did not substantially comply with FFMIA.
Kearney & Company is responsible for the attached auditor’s report, which includes the Independent Auditor’s Report, the Report on Internal Control Over Financial Reporting, and the Report on Compliance With Applicable Provisions of Laws, Regulations, Contracts, and Grant Agreements, dated December 12, 2013, and the conclusions expressed in the report. The Office of Inspector General (OIG) does not express an opinion on the Department’s financial statements or conclusions on internal control over financial reporting and compliance with laws, regulations, contracts, and grant agreements, including whether the Department’s financial management systems substantially complied with FFMIA.
Comments on the auditor’s report from the Bureau of the Comptroller and Global Financial Services are attached to the report.
OIG appreciates the cooperation extended to it and Kearney & Company by Department managers and staff during the conduct of this audit.
Attachment: As stated.
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60 | United States Department of State • 2013 Agency Financial Report INDEPENDENT AUDITOR’S REPORT | FINANCIAL SECTION
1701 Duke Street, Suite 500, Alexandria, VA 22314 PH: 703.931.5600, FX: 703.931.3655, www.kearneyco.com
INDEPENDENT AUDITOR’S REPORT AUD-FM-14-10
To the Secretary and the Inspector General of the U.S. Department of State
Report on the Financial Statements
We have audited the accompanying consolidated financial statements of the U.S. Department of State (Department), which comprise the consolidated balance sheets as of September 30, 2013 and 2012, the related consolidated statements of net cost and changes in net position and the combined statements of budgetary resources for the years then ended, and the related notes to the consolidated financial statements (hereinafter referred to as the “consolidated financial statements”).
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and Office of Management and Budget (OMB) Bulletin No. 14-02, Audit Requirements for Federal Financial Statements. Those standards and OMB Bulletin No. 14-02 require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate under the circumstances but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
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2013 Agency Financial Report • United States Department of State | 61 FINANCIAL SECTION | INDEPENDENT AUDITOR’S REPORT
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion on the Consolidated Financial Statements
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Department as of September 30, 2013 and 2012, and its net cost of operations, changes in net position, and budgetary resources for the years then ended, in accordance with accounting principles generally accepted in the United States of America.
Emphasis of Matters
As discussed in Note 1 to the financial statements, in FY 2013, the Department adopted new accounting guidance issued by the Federal Accounting Standards Advisory Board (FASAB)— specifically, Technical Bulletin 2006-1, Recognition and Measurement of Asbestos-Related Cleanup Costs, and Statement of Federal Financial Accounting Standards No. 43 – Funds from Dedicated Collections: Amending Statement of Federal Financial Accounting Standards 27, Identifying and Reporting Earmarked Funds. Additional information on the Department’s asbestos cleanup costs is provided in Note 9, and additional information on the restatement of the FY 2012 financial statements due to the retrospective application of the dedicated collections standard is provided in Note 14. Our opinion is not modified with respect to these matters.
Other Matters
Required Supplementary Information
Accounting principles generally accepted in the United States of America require that the Management’s Discussion and Analysis, condition assessments of Heritage Assets, Combining Schedule of Budgetary Resources, and Deferred Maintenance (hereinafter referred to as “required supplementary information”) be presented to supplement the consolidated financial statements. Such information, although not a part of the consolidated financial statements, is required by OMB Circular A-136, Financial Reporting Requirements, and FASAB, which consider it to be an essential part of financial reporting for placing the consolidated financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing it for consistency with management’s responses to our inquiries, the consolidated financial statements, and other knowledge we obtained during our audits of the consolidated financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.
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62 | United States Department of State • 2013 Agency Financial Report INDEPENDENT AUDITOR’S REPORT | FINANCIAL SECTION
Other Information
Our audits were conducted for the purpose of forming an opinion on the consolidated financial statements as a whole. The Financial Management Plans and Reports, the Management of Departmental Obligations, the Schedule of Spending, the Inspector General’s Assessment of Management and Performance Challenges, the Management Challenges Response, the Summary of Financial Statement Audit and Management Assurances, and the Messages from the Secretary and the Comptroller are presented for purposes of additional analysis and are not a required part of the consolidated financial statements. Such information has not been subjected to the auditing procedures applied in the audits of the consolidated financial statements, and accordingly, we do not express an opinion or provide any assurance on it.
Other Reporting Required by Government Auditing Standards
In accordance with Government Auditing Standards and OMB Bulletin No. 14-02, we have also issued reports, dated December 12, 2013, on our consideration of the Department’s internal control over financial reporting and on our tests of the Department’s compliance with certain provisions of laws, regulations, contracts, and grant agreements for the year ended September 30, 2013. The purpose of those reports is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing and not to provide an opinion on internal control over financial reporting or on compliance. Those reports are an integral part of an audit performed in accordance with auditing standards generally accepted in the United States of America, Government Auditing Standards, and OMB Bulletin No. 14-02 in considering the Department’s internal control over financial reporting and compliance.
Alexandria, Virginia December 12, 2013
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2013 Agency Financial Report • United States Department of State | 63 FINANCIAL SECTION | INDEPENDENT AUDITOR’S REPORT
1701 Duke Street, Suite 500, Alexandria, VA 22314 PH: 703.931.5600, FX: 703.931.3655, www.kearneyco.com INDEPENDENT AUDITOR’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
To the Secretary and the Inspector General of the U.S. Department of State
We have audited the consolidated financial statements of the U.S. Department of State (Department) as of and for the year ended September 30, 2013, and have issued our report thereon dated December 12, 2013. We conducted our audit in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and Office of Management and Budget (OMB) Bulletin No. 14-02, Audit Requirements for Federal Financial Statements.
Internal Control Over Financial Reporting
In planning and performing our audit of the consolidated financial statements, we considered the Department’s internal control over financial reporting (internal control) as a basis for designing audit procedures that are appropriate under the circumstances for the purpose of expressing our opinion on the consolidated financial statements but not for the purpose of expressing an opinion on the effectiveness of the Department’s internal control. Accordingly, we do not express an opinion on the effectiveness of the Department’s internal control. We limited our internal control testing to those controls necessary to achieve the objectives described in OMB Bulletin No. 14-02. We did not test all internal controls relevant to operating objectives as broadly defined by the Federal Managers’ Financial Integrity Act of 1982, such as those controls relevant to ensuring efficient operations.
A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected on a timely basis.
Our consideration of internal control was for the limited purpose described in the preceding paragraphs and was not designed to identify all deficiencies in internal control that might be material weaknesses. Given these limitations, during our audit, we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified.
Our audit was also not designed to identify deficiencies in internal control that might be significant. A significant deficiency is a deficiency, or combination of deficiencies, in internal control that is less severe than a material weakness yet important enough to merit attention by those charged with governance. We consider the following deficiencies in the Department’s internal control to be significant deficiencies.
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64 | United States Department of State • 2013 Agency Financial Report INDEPENDENT AUDITOR’S REPORT | FINANCIAL SECTION
Significant Deficiencies
I. Financial Reporting
The Department compiled its financial statements through a multistep process using a combination of manual and automated procedures. Neither the Department’s Global Financial Management System (GFMS) nor Hyperion, which is the system used to produce the proprietary trial balance, is used to fully compile the statements. The inability of the financial management system to track the necessary attributes related to financial reporting forces the Department to use a manual, labor-intensive process to develop its balance sheet, statement of net cost (SNC), statement of changes in net position, and statement of budgetary resources (SBR). The necessary data was extracted from multiple systems and source files and was sometimes manually keyed into crosswalk files or statement preparation templates (Microsoft Excel workbooks), which ultimately created the Department’s financial statements. Manual adjustments require an increased measure of internal control and review, reduce the Department’s ability to produce statements in a timely manner, and increase the likelihood of errors in the statements.
In our report on the Department’s FY 2009 financial statements, we identified financial reporting as a material weakness. During FY 2010, the Department developed a corrective action plan to address selected control deficiencies and financial reporting risks surrounding the financial statement preparation process to reduce the material weakness. In FY 2011 and FY 2012, the audit process identified additional control deficiencies, which, when combined, resulted in a material weakness. In FY 2013, the Department addressed selected control deficiencies and improved underlying data, which reduced the risk associated with financial reporting. For example, the Department improved procedures relating to abnormal account balances and routine analytical reviews. Although the Department had made some improvements, not all issues were addressed, and so financial reporting continues to be a significant deficiency.
• Preparation of the Statement of Budgetary Resources – The SBR is predominantly derived from an entity’s budgetary general ledger in accordance with budgetary accounting rules. Information on the SBR should reconcile with budget execution information reported to the Department of the Treasury on Standard Form (SF) 133, Report on Budget Execution and Budgetary Resources, and with information reported in the Budget of the United States Government to ensure the integrity of the numbers presented. We found that the Department had made numerous adjustments related to budgetary resources outside the financial system, most of which originated from automated calculations as well as manual journal entries. We identified a number of significant discrepancies in the adjustments made during the manual preparation of the Department’s SF 133 workbooks.
The Department did not use the full functionality of its accounting systems to capture all budgetary accounting events and automate SBR reporting procedures. In some cases, GFMS was not programmed to process certain budgetary transaction types in complete compliance with USSGL posting models. The manual nature of the process the Department used to compile its SBR was high risk and resource intensive.
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2013 Agency Financial Report • United States Department of State | 65 FINANCIAL SECTION | INDEPENDENT AUDITOR’S REPORT
• Preparation of the Statement of Net Cost – The Department’s SNC reports net costs by strategic goals based on the mapping of fund groups to individual strategic goals using data maintained in its accounting system. The mapping process originated in FY 2004, when the Department modified its Hyperion application to allocate costs and revenue among the Department’s major programs based on its FY 2000 strategic goals. The Hyperion programming had not been updated to reflect the Department’s current strategic goals. Therefore, in order to produce the SNC, the Department developed a multistep process using a combination of manual and automated procedures. The necessary data was extracted from multiple applications and source files. In FY 2013, the Department added an additional layer of manual mapping to allocate costs and revenues from the FY 2008 goals to the revised FY 2013 goals, which added to the complexity of the allocation methodology and SNC preparation.
The Department did not take advantage of the full functionality of its accounting systems to capture cost accounting events and automate SNC reporting procedures. To automate the process, the Department would need to significantly reprogram the Hyperion application each time the Department’s strategic goals were changed in order to align costs and revenues to the goals, which would require a commitment of time and resources. The manual and fragmented nature of the current allocation process for the compilation of the Department’s SNC created a high risk of errors.
II. Property and Equipment
The Department reported over $17 billion in net property and equipment on its FY 2013 balance sheet. Real and leased property consisted primarily of facilities used for U.S. diplomatic missions abroad and capital improvements to these facilities. Personal property consisted of several asset categories, including aircraft, vehicles, security equipment, communication equipment, and software. Weaknesses in property were initially reported in the audit of the Department’s FY 2005 financial statements and subsequent audits. In FY 2013, the Department’s internal control structure continued to exhibit several deficiencies that negatively affected the Department’s ability to account for real and personal property in a complete, accurate, and timely manner. We concluded that the combination of property-related control deficiencies was a significant deficiency. The individual deficiencies we identified are summarized as follows:
• Personal Property Acquisitions and Disposals – The Department uses several non- integrated systems to track, manage, and record personal property transactions, which are periodically merged or reconciled with the financial management system in order to centrally account for the acquisition and disposal of personal property. We noted a significant number of prior year personal property transactions that were not recorded until the current year. In addition, we noted that the acquisition value for a number of selected items could not be supported and the gain or loss on personal property disposals was not recorded properly for numerous items. The Department’s control structure did not ensure that personal property acquisitions and disposals were recorded in a timely and
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66 | United States Department of State • 2013 Agency Financial Report INDEPENDENT AUDITOR’S REPORT | FINANCIAL SECTION
accurate manner. In addition, the Department’s monitoring activities were not always effective to ensure proper financial reporting for personal property. The errors resulted in misstatements to the Department’s financial statements. The lack of effective control may result in the loss of accountability for asset custodianship, which could lead to undetected theft or waste.
• Recording Constructed Assets – The Department currently manages nearly $3 billion in overseas construction projects. All construction projects should be tracked in the Construction-in-Progress account until the project reaches completion. Once a construction project is complete, the Department transfers the asset to the real property asset account and the asset is depreciated over its estimated useful life. In FY 2013, we found that the Department had reclassified costs related to a large construction project that was completed in FY 2012. All costs relating to this project were incorrectly recorded as expenses during prior years. The Department used project codes to ensure construction activities were properly recorded; however, the unrecorded facility did not have a project code. The misclassification led to an understatement in property and an overstatement of expenses in the Department’s financial statements.
Operating Lease Disclosure – The Department manages over 15,600 real property leases throughout the world. The Department must disclose the future minimum lease payments (FMLP) related to the Department’s operating lease obligations in the footnotes to the annual financial statements. We found numerous recorded lease terms that did not agree with supporting documentation and two leases that should have been capitalized but were inaccurately listed as operating leases. We also analyzed the Department’s methodology for calculating the FMLP and found that the formulas did not sufficiently take into account payment escalations and inflationary adjustments. The Department’s process to monitor lease information provided by posts was not always effective. The discrepancies identified in the Department’s FMLP calculation methodology led to multiple errors in the Department’s footnote disclosure. In addition, the misclassification of two leases that met the Department’s criteria for capitalization resulted in an understatement of assets and liabilities on the Department’s balance sheet.
III. Budgetary Accounting
The Department lacked sufficient reliable funds control over its accounting and business processes to ensure budgetary transactions were properly recorded, monitored, and reported. Beginning in our report on the Department’s FY 2010 financial statements, we identified budgetary accounting as a significant deficiency. During FY 2013, the audit continued to identify control limitations, and we concluded that the combination of control deficiencies remained a significant deficiency. The individual deficiencies we identified are summarized as follows:
• Unsupported Obligations – Obligations are definite commitments that will result in outlays, immediately or in the future. The Department should record only legitimate obligations, which would include a reasonable estimate of potential future outlays. We
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identified a large number of low-value obligations for which the Department could not provide evidence of a binding agreement. The Department’s financial system was designed to reject payments for invoices without established obligations. Because allotment holders were not always recording valid and accurate obligations prior to the receipt of goods and services, the Department established low-value obligations, which allowed invoices to be paid in compliance with the Prompt Payment Act but effectively bypassed system controls. The continued use of this practice could lead to a violation of the Antideficiency Act, and it increased the risk of fraud, misuse, and waste.
• Timeliness of Obligations – The Department should record an obligation in its financial management system when it enters into an agreement, such as a contract or a purchase order, to purchase goods and services. During our testing, we identified obligations that were not recorded within 15 days of execution of the obligating document and obligations that were posted subsequent to the receipt of goods and services. We also identified obligations that were recorded in the financial management systems prior to the formal execution of a contract. The Department did not have processes to ensure the accurate and timely creation, approval, and recording of obligations. Without an effective obligation process, controls to monitor funds and make timely payments may be compromised, which may lead to violations of the Antideficiency Act and the Prompt Payment Act.
• Capital Lease Obligations – The Department must obligate funds to cover the net present value of the Government’s total estimated legal obligation over the life of a capital lease contract. However, the Department annually obligates funds equal to 1 year of the capital lease cost rather than the entire amount of the lease agreement. The Department obligated leases on an annual basis rather than the entire lease agreement period because that is the manner in which funds are budgeted and appropriated. Because of the unrecorded obligation, the Department’s financial statements were misstated.
• Effectiveness of Allotment Controls – Federal agencies use allotments to allocate funds in accordance with OMB apportionments or other statutory authority. Allotments provide authority to agency officials to incur obligations as long as those obligations are within the scope and terms of the allotment authority. The Department’s accounting systems did not have an automated control to prevent users from recording obligations that exceeded allotment amounts. Although the systems displayed a warning when users processed obligations in excess of allotted funds, users had the ability to override the warning. Overriding the allotment controls could lead to a violation of the Antideficiency Act and increased the risk of fraud, misuse, and waste.
IV. Validity and Accuracy of Unliquidated Obligations
Unliquidated obligations (ULO) represent the cumulative amount of orders, contracts, and other binding agreements not yet outlayed. The Department’s policies and procedures provide guidance related to the periodic review, analysis, and validation of the ULO balances posted to the general ledger. We identified invalid ULOs amounting to approximately $243.7 million that
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had not been identified by the Department’s review process. The current internal control structure was not operating effectively to comply with existing policy or facilitate the accurate reporting of ULO balances in the financial statements. The Department’s internal controls were not sufficient to ensure that ULOs were consistently and systematically evaluated for validity and deobligation. As a result of the invalid ULOs, the Department’s financial statements were misstated. In addition, funds that could have been used for other purposes might have remained in unneeded obligations. Weaknesses in controls over ULOs were initially reported in the audit of the Department’s 1997 financial statements and subsequent audits.
V. Foreign Service Retirement and Disability Fund Data Inaccuracies and Timeliness
The Department’s Foreign Service Retirement and Disability Fund (FSRDF) provides a variety of after-employment benefits to members of the Foreign Service, including active employees, retired annuitants, and surviving beneficiaries. The estimated liability for these benefits is calculated annually by an actuary for purposes of financial reporting and managing the FSRDF program. Annually, the Department provides certain data to the actuary, including information from its compensation and annuitant systems, to be used as the basis for the actuarial valuation. We identified errors in the data used for the FSRDF actuarial estimates, including specific amounts that had not been increased by allowable cost-of-living adjustments for several years. Further analysis by the Department and its actuary identified additional errors that also required correction.
Although the Department had implemented recurring data validation controls, these controls were ineffective in identifying and remediating the outdated annuitant information. The Department revalued its actuarial estimates to correct the understatement of liabilities that resulted from the outdated benefit information. The additional calculations and valuations required additional time and effort, which impacted the Department’s ability to complete the FY 2013 reporting process in a timely manner.
VI. Information Technology
The Department’s information technology (IT) internal control structure, both for the general support systems and critical financial reporting applications, exhibited limitations in several areas, including risk management strategies and user account management. The National Institute of Standards and Technology and the Government Accountability Office’s Federal Information System Controls Audit Manual provide control objectives and evaluation techniques that we used during our audit. Weaknesses in IT controls have been reported as a significant deficiency since FY 2009.
In accordance with the Federal Information Security Management Act of 2002 (FISMA), the Office of Inspector General (OIG) performed a review of the Department’s information security program for FY 2013.1 Overall, OIG found that the Department had implemented an information security program and had made progress during FY 2013 to address IT deficiencies
1 Audit of the Department of State Information Security Program (AUD-IT-14-03, Nov. 2013). 6
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identified in prior FISMA reports, but OIG continued to identify weaknesses in the risk management framework, plans of action and milestones, and the continuous monitoring program, which were collectively reported as a FISMA significant deficiency. A significant deficiency is the highest level of severity under FISMA.
The scope of our audit was focused primarily on deficiencies that could lead to significant misstatements of or corruption to the Department’s financial data. Based on IT deficiencies noted with the general support systems, we developed additional risk-based audit procedures to substantively test financial management system inputs and outputs. Our procedures did not identify any material misstatements that were caused by general support system deficiencies. In addition, we tested and confirmed certain compensating controls that would mitigate some of the risks that were attributable to the general support system weaknesses. Although the Department had addressed certain deficiencies in its financial reporting applications, we noted other IT deficiencies reported in prior years that had not been addressed and identified an additional deficiency. Collectively, the deficiencies noted by OIG during the FISMA evaluation and by us during the financial statement audit are considered to be a significant deficiency within the scope of our financial statement audit. The deficiencies noted during the financial statement audit are summarized as follows:
• Segregation of Duties – A fundamental element of internal control is the segregation of certain key duties. The basic idea underlying segregation of duties (SoD) is that no one individual should control all key aspects of a transaction or event. We found instances of SoD violations and incompatible functions in the Regional Financial Management System/Momentum (RFMS/M), the Consolidated American Payroll Processing System, and the Global Foreign Affairs Compensation System (GFACS). Additionally, the Department had not designed and implemented sufficient SoD controls for the Global Employment Management System. Inadequate SoD contributes to an overall weakening of the internal control environment and increases the risk that errors and irregularities can occur and remain undetected.
• Monitoring Audit Logs for Financial Applications – Monitoring activities or events within an application is a key control that is performed to detect suspicious behavior or malfunctions. An audit log is an automated record that contains specific events or activities within an application in an electronic form. The audit log enables administrators to have regular visibility into user access or other activities in a manageable way. In FY 2012, we found that the Department did not regularly review audit logs and investigate significant events for certain financial systems, including GFMS, RFMS, GFACS, and the Foreign Service National Payroll System. In FY 2013, the Department developed corrective action plans to implement effective monitoring procedures for each application; however, these action plans were not fully executed to mitigate existing weaknesses. By not reviewing the audit logs on a regular basis, the Department did not have reasonable assurance that inappropriate access or changes to user accounts would be identified in a timely manner.
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• Alteration of Global Foreign Affairs Compensation System Annuitants Historical Data – GFACS Annuitants is an annuity payment application built from the Oracle PeopleSoft Human Resource Management System. The Oracle system provides users with the option to configure how transactional data is stored and changed. One configuration option is “correction mode,” which allows a user to modify previously entered data—thus enabling the user to alter the historical records used to calculate payments. We identified three supervisors who had used the correction mode functionality to alter annuitants’ historical records on multiple occasions. Therefore, GFACS Annuitants did not have sufficient historical records that could be used to track changes made to annuitant payments. In addition, we found that the Department had not implemented sufficient compensating controls to monitor the use of the correction mode, such as automated audit logs and periodic reviews by an independent party. The ability to alter historical annuitant pay records without adequate monitoring controls contributes to an overall weakening of the internal control environment and increases the risk that errors and irregularities can occur and remain undetected. Further, this situation could lead to fraudulent activity or impede an investigation if required as the original transactional data might no longer be available.
During the audit, we noted certain additional matters involving internal control over financial reporting that we will report to Department management in a separate letter.
Summary of Significant Internal Control Deficiencies
In the Report on Internal Control included in the audit report on the Department’s FY 2012 financial statements,2 we noted several issues that were related to internal control over financial reporting. The status of these issues are summarized in Table 1, in addition to issues identified in FY 2013.
2 Independent Auditor’s Report on the U.S. Department of State 2012 and 2011 Financial Statements (AUD-FM-13- 08, Nov. 2012). 8
2013 Agency Financial Report • United States Department of State | 71 FINANCIAL SECTION | INDEPENDENT AUDITOR’S REPORT
Table 1. Summary of Significant Internal Control Deficiencies Control Deficiency FY 2012 Status FY 2013 Status
Financial Reporting Material Weakness Significant Deficiency
Foreign Service National After- Significant Deficiency Management Letter Employment Benefits
Property and Equipment Significant Deficiency Significant Deficiency
Budgetary Accounting Significant Deficiency Significant Deficiency
Validity and Accuracy of Significant Deficiency Significant Deficiency Unliquidated Obligations Foreign Service Retirement and Disability Fund Data Inaccuracies Not Reported Significant Deficiency and Timeliness
Information Technology Significant Deficiency Significant Deficiency
Department’s Response to Findings
Department management has provided its response to our findings in a separate memorandum attached to this report. We did not audit management’s response, and accordingly, we express no opinion on it.
Purpose of This Report
The purpose of this report is solely to describe the scope of our testing of internal control over financial reporting and the results of that testing and not to provide an opinion on the effectiveness of the Department’s internal control. This report is an integral part of an audit performed in accordance with auditing standards generally accepted in the United States of America, Government Auditing Standards, and OMB Bulletin No. 14-02, in considering the entity’s internal control over financial reporting. Accordingly, this report is not suitable for any other purpose.
Alexandria, Virginia December 12, 2013
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72 | United States Department of State • 2013 Agency Financial Report INDEPENDENT AUDITOR’S REPORT | FINANCIAL SECTION
1701 Duke Street, Suite 500, Alexandria, VA 22314 PH: 703.931.5600, FX: 703.931.3655, www.kearneyco.com INDEPENDENT AUDITOR’S REPORT ON COMPLIANCE WITH APPLICABLE PROVISIONS OF LAWS, REGULATIONS, CONTRACTS, AND GRANT AGREEMENTS
To the Secretary and the Inspector General of the U.S. Department of State
We have audited the consolidated financial statements of the U.S. Department of State (Department) as of and for the year ended September 30, 2013, and have issued our report thereon dated December 12, 2013. We conducted our audit in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and Office of Management and Budget (OMB) Bulletin No. 14-02, Audit Requirements for Federal Financial Statements.
Compliance
As part of obtaining reasonable assurance about whether the Department’s consolidated financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material impact on the determination of financial statement amounts, and certain provisions of other laws and regulations specified in OMB Bulletin No. 14-02, including the provisions referred to in Section 803(a) of the Federal Financial Management Improvement Act of 1996 (FFMIA), that we determined were applicable. We limited our tests of compliance to these provisions and did not test compliance with all laws, regulations, contracts, and grant agreements applicable to the Department. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion.
The results of our tests, exclusive of those related to FFMIA, disclosed instances of noncompliance that are required to be reported under Government Auditing Standards and OMB Bulletin No. 14-02 and which are summarized as follows:
• Antideficiency Act. This act prohibits the Department from (1) making or authorizing an expenditure from, or creating or authorizing an obligation under, any appropriation or fund in excess of the amount available in the appropriation or fund unless authorized by law; (2) involving the Government in any obligation to pay money before funds have been appropriated for that purpose, unless otherwise allowed by law; and (3) making obligations or expenditures in excess of an apportionment or reapportionment, or in excess of the amount permitted by agency regulations. Our audit procedures identified Department of the Treasury fund symbols with negative balances that were potentially in violation of the Antideficiency Act.
• Prompt Payment Act. This act requires Federal agencies to make payments in a timely manner, pay interest penalties when payments are late, and take discounts only when payments are made within the discount period. The Department did not always make
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payments within 30 days, as required. Additionally, we found that the Department did not consistently pay interest penalties for domestic and overseas payments in accordance with the Prompt Payment Act.
Under FFMIA, we are required to report whether the Department’s financial management systems substantially comply with Federal financial management systems requirements, applicable Federal accounting standards, and the U.S. Standard General Ledger (USSGL) at the transaction level. The results of our tests of compliance with FFMIA noted certain instances, as described, in which the Department’s financial management systems and related controls did not substantially comply with certain Federal systems requirements, Federal accounting standards, and the USSGL at the transaction level.
Federal Financial Management Systems Requirements
• During its annual evaluation of the Department’s information security program, as required by the Federal Information Security Management Act, the Department’s Office of Inspector General identified weaknesses with computer security that it reported collectively as representing a significant deficiency.3 • Certain subsidiary systems, including property systems, were not integrated with the core accounting system. An audit trail from data in the core financial system to detailed source transactions in feeder systems was not always readily available. • There were deficiencies with the Department’s account management processes for key financial applications, including inadequate monitoring of user access and changes to user accounts. In addition, adequate segregation of duties was not fully maintained in certain financial systems. • The Department records numerous and material manual adjustments on a monthly basis to align budgetary balances to proprietary amounts. Without these adjustments, budgetary and proprietary accounts would not be in balance. • Interest was not always paid on overdue domestic and overseas payments.
Applicable Federal Accounting Standards
• The Department’s core accounting system did not produce complete, auditable financial statements without significant manual adjustments.
Standard General Ledger at the Transaction Level
• The Department’s statements of budgetary resources and net cost were subject to numerous adjustments that were made outside the core accounting system and that could not be traced directly to USSGL account balances.
The Department had not implemented and enforced systematic financial management controls to ensure substantial compliance with FFMIA. The Department had not executed remediation
3 Audit of the Department of State Information Security Program (AUD-IT-14-03, Nov. 2013).
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plans to address all instances of noncompliance. The Department’s ability to meet Federal financial management system requirements and produce complete financial statements from its core accounting system was hindered by systemic limitations in systems and processes.
Except as noted above, our tests of compliance with the provisions of selected laws, regulations, contracts, and grant agreements disclosed no other instances of noncompliance that would be reportable under the standards applicable to financial audits contained in Government Auditing Standards and OMB Bulletin No. 14-02.
During the audit, we noted certain additional matters involving compliance that we will report to Department management in a separate letter.
Department’s Response to Findings
Department management has provided its response to our findings in a separate memorandum attached to this report. We did not audit management’s response, and accordingly, we express no opinion on it.
Purpose of This Report
The purpose of this report is solely to describe the scope of our testing of compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity’s compliance. This report is an integral part of an audit performed in accordance with auditing standards generally accepted in the United States of America, Government Auditing Standards, and OMB Bulletin No. 14-02 in considering the entity’s compliance. Accordingly, this report is not suitable for any other purpose.
Alexandria, Virginia December 12, 2013
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2013 Agency Financial Report • United States Department of State | 75 FINANCIAL SECTION | COMPTROLLER RESPONSE TO THE OIG
United States Department of State
Washington, D.C. 20520
UNCLASSIFIED
December 15, 2013
MEMORANDUM
TO: OIG – Steve A. Linick
FROM: CGFS – James L. Millette
SUBJECT: Draft Audit Report on the Department of State’s Fiscal Year 2013 and 2012 Financial Statements
This memo is in response to your request for comments on the Draft Report of the Independent Auditor, Report on Internal Control, and Report of Compliance and other Matters (Report) on the U.S. Department of State’s Fiscal Year 2013 and 2012 Financial Statements.
The Department operates in over 270 locations and 180 countries and in many challenging environments. The scale and complexity of Department activities and corresponding financial management requirements are immense. We understand and appreciate this dynamic as we pursue an efficient, accountable, and transparent financial management platform that enhances the Department’s foreign affairs mission. Part of our accountability is the indispensable discipline of the annual external audit process and the disclosure of the Department’s annual financial statements. Few outside the financial community likely realize the time and effort that go into conducting the audit and producing the AFR, as we all work to demonstrate our commitment to strong financial management practices. It is a robust and exhaustive process.
This year was no exception. It has been a concerted and dedicated effort by all stakeholders involved. While we may not agree on every aspect of the process and findings, we certainly appreciate the professionalism and commitment by all parties, including the Office of the Inspector General and Kearney & Company, to work together throughout the audit process. While we know there will always be new challenges and concerns given our global operating environment and the ever-expanding scope of compliance requirements, we believe the Independent Auditor’s Report reflects the continuous improvement we strive to achieve in the Bureau of the Comptroller and Global Financial Services and across the Department’s financial management community.
As outlined in the Independent Auditor’s Report, we are pleased that the Department has received an unmodified (“clean”) audit opinion on its FY 2013 and 2012 Financial Statements, and with no material weaknesses identified by the Independent Auditor. As noted by the Independent Auditor, improvements were made in several areas including financial reporting and accounting for FSN after-employment benefits.
76 | United States Department of State • 2013 Agency Financial Report COMPTROLLER RESPONSE TO THE OIG | FINANCIAL SECTION
We remain committed to strong corporate governance and internal controls as demonstrated by our robust system of internal controls overseen by our Management Control Steering Committee (MCSC) and validated by the senior leadership. For FY 2013, no material weaknesses in internal control over financial reporting were identified by the Senior Assessment Team, the MCSC or senior leadership. As a result, the Secretary was able to provide reasonable assurance for the Department’s internal controls over financial reporting in accordance with the Federal Managers’ Financial Integrity Act.
Thank you for the opportunity to comment on the Draft Report. I would also like to extend our thanks to your staff and Kearney & Company for the professional and collaborative manner in which the audit was conducted. We fully recognize that there are a number of items identified in the Draft Audit Report that will require our continued attention, action, and improvement. We will continue to direct focused efforts to resolve issues for all significant deficiencies in internal control identified by management and the Independent Auditor. We look forward to working with you and other stakeholders on addressing these issues in the coming year.
2013 Agency Financial Report • United States Department of State | 77 FINANCIAL SECTION | PRINCIPAL FINANCIAL STATEMENTS
Introducing the Principal Financial Statements
he Principal Financial Statements TheConsolidated Statement of Net Cost reports the (Statements) have been prepared to components of the net costs of the Department’s operations T report the financial position and results for the period. The net cost of operations consists of the of operations of the U.S. Department of State gross cost incurred by the Department less any exchange (Department). The Statements have been prepared (i.e., earned) revenue from our activities. Intra-departmental from the books and records of the Department in balances have been eliminated from the amounts presented. accordance with formats prescribed by the Office of Management and Budget (OMB) in OMB TheConsolidated Statement of Changes in Net Circular A-136, Financial Reporting Requirements, Position reports the beginning net position, the revised. The Statements are in addition to transactions that affect net position for the period, and financial reports prepared by the Department in the ending net position. Intra-departmental transactions accordance with OMB and U.S. Department of have been eliminated from the amounts presented. the Treasury (Treasury) directives to monitor and control the status and use of budgetary resources, TheCombined Statement of Budgetary Resources which are prepared from the same books and provides information on how budgetary resources were records. The Statements should be read with the made available and their status at the end of the year. understanding that they are for a component of Information in this statement is reported on the budgetary the U.S. Government, a sovereign entity. The basis of accounting. Intra-departmental transactions have Department has no authority to pay liabilities not not been eliminated from the amounts presented. covered by budgetary resources. Liquidation of such liabilities requires enactment of an appropriation. Required Supplementary Information contains a Comparative data for 2012 are included. Combining Schedule of Budgetary Resources that provides additional information on amounts presented in the TheConsolidated Balance Sheet provides Combined Statement of Budgetary Resources, information information on assets, liabilities, and net position on deferred maintenance, and condition of heritage assets similar to balance sheets reported in the private held by the Department. sector. Intra-departmental balances have been eliminated from the amounts presented.
78 | United States Department of State • 2013 Agency Financial Report PRINCIPAL FINANCIAL STATEMENTS | FINANCIAL SECTION
CONSOLIDATED BALANCE SHEET
(dollars in millions)
2012 As of September 30, Notes 2013 Restated (Note 14)
ASSETS 2 Intragovernmental Assets: Fund Balances With Treasury 3 $ 47,557 $ 44,223 Investments, Net 4 17,408 16,928 Interest Receivable 163 170 Accounts Receivable, Net 5 311 321 Other Assets 8 822 918 Total Intragovernmental Assets 66,261 62,560 Accounts and Loans Receivable, Net 5 194 141 Cash and Other Monetary Assets 6 155 143 Property and Equipment, Net 7 17,559 16,087 Other Assets 8 598 641 Total Assets $ 84,767 $ 79,572 Stewardship Property and Equipment; Heritage Assets 7
LIABILITIES 9 Intragovernmental Liabilities: Accounts Payable $ 247 $ 364 Other Liabilities 365 348 Total Intragovernmental Liabilities 612 712 Accounts Payable 2,123 2,429 After-Employment Benefit Liability 10 20,566 19,893 International Organizations Liabilities 11 1,909 1,425 Other Liabilities 9,12 1,185 968 Total Liabilities 26,395 25,427 Contingencies and Commitments 13
NET POSITION Unexpended Appropriations—Funds From — — Dedicated Collections Unexpended Appropriations—Other Funds 38,212 35,312 Cumulative Results of Operations—Funds From 14 286 282 Dedicated Collections Cumulative Results of Operations—Other Funds 19,874 18,551 Total Net Position 58,372 54,145 Total Liabilities and Net Position $ 84,767 $ 79,572
The accompanying notes are an integral part of this financial statement.
2013 Agency Financial Report • United States Department of State | 79 FINANCIAL SECTION | PRINCIPAL FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF NET COST (NOTE 15)
(dollars in millions)
For the Year Ended September 30, 2013 2012
Countering Security Threats and Advancing Global Security Total Cost $ 5,942 $ 7,115 Earned Revenue (377) (789) Net Program Costs 5,565 6,326 Managing Transitions in the Frontline States Total Cost 2,130 1,491 Earned Revenue (75) (126) Net Program Costs 2,055 1,365 Expanding and Sustaining Stable States through Democratic Principles Total Cost 11,338 11,475 Earned Revenue (863) (465) Net Program Costs 10,475 11,010 Providing Humanitarian Assistance and Supporting Disaster Mitigation Total Cost 2,284 1,619 Earned Revenue (1) — Net Program Costs 2,283 1,619 Supporting American Prosperity through Economic Diplomacy Total Cost 121 75 Earned Revenue (21) (31) Net Program Costs 100 44 Advancing U.S. Interests through Public Diplomacy and Programs Total Cost 894 1,314 Earned Revenue (177) (304) Net Program Costs 717 1,010 Achieving Consular Excellence and a Secure U.S. Presence Internationally Total Cost 5,411 5,637 Earned Revenue (3,709) (3,543) Net Program Costs 1,702 2,094 Executive Direction and Other Costs Not Assigned Total Cost 3,615 3,704 Earned Revenue (1,805) (1,486) Net Program Costs Before Assumption Changes 1,810 2,218 Actuarial Loss on Pension Assumption Changes (Notes 1 and 10) 360 770 Net Program Costs 2,170 2,988 Total Cost and Loss on Assumption Changes 32,095 33,200 Total Revenue (7,028) (6,744) Total Net Cost $ 25,067 $ 26,456
The accompanying notes are an integral part of this financial statement.
80 | United States Department of State • 2013 Agency Financial Report PRINCIPAL FINANCIAL STATEMENTS | FINANCIAL SECTION
CONSOLIDATED STATEMENT OF CHANGES IN NET POSITION
(dollars in millions) For the Year Ended September 30, 2013 2012
Funds From Dedicated Consolidated Consolidated Collections All Other Funds Total Total
Cumulative Results of Operations Beginning Balances $ (2,072) $ 20,905 $ 18,833 $ 17,603 Change in Accounting Principle Adjustments (Notes 9 and 14) 2,354 (2,510) (156) — Beginning Balances, as adjusted 282 18,395 18,677 17,603
Budgetary Financing Sources: Appropriations Used — 27,075 27,075 28,124 Non-exchange Revenue 4 37 41 70 Donations 14 — 14 19 Transfers in(out) without Reimbursement 45 (94) (49) 20
Other Financing Sources: Donations — — — 12 Imputed Financing from Costs Absorbed by Others — 156 156 160 Non-entity Collections — (687) (687) (719) Total Financing Sources 63 26,487 26,550 27,686 Net Cost of Operations (59) (25,008) (25,067) (26,456) Net Change 4 1,479 1,483 1,230 Total Cumulative Results of Operations 286 19,874 20,160 18,833
Unexpended Appropriations Beginning Balances $ — $ 35,312 $ 35,312 $ 31,915
Budgetary Financing Sources: Appropriations Received — 32,573 32,573 31,840 Appropriations Transferred in(out) — (197) (197) (94) Rescissions and Canceling Funds — (2,401) (2,401) (225) Appropriations Used — (27,075) (27,075) (28,124) Total Budgetary Financing Sources — 2,900 2,900 3,397 Total Unexpended Appropriations — 38,212 38,212 35,312
Net Position $ 286 $ 58,086 $ 58,372 $ 54,145
The accompanying notes are an integral part of this financial statement.
2013 Agency Financial Report • United States Department of State | 81 FINANCIAL SECTION | PRINCIPAL FINANCIAL STATEMENTS
COMBINED STATEMENT OF BUDGETARY RESOURCES (NOTE 16)
(dollars in millions) For the Year Ended September 30, 2013 2012 Budgetary Resources: Unobligated balance, brought forward, October 1 $ 17,481 $ 13,460 Adjustment to unobligated balance brought forward, October 1 (19) (336) Unobligated balance brought forward, October 1, as adjusted 17,462 13,124 Recoveries of prior year unpaid obligations 1,717 1,630 Other changes in unobligated balance (+ or -) (477) 691 Unobligated balance from prior year budget authority, net 18,702 15,445 Appropriations (discretionary and mandatory) 31,467 31,772 Borrowing authority (discretionary and mandatory) 1 1 Contract authority (discretionary and mandatory) — — Spending authority from offsetting collections (discretionary and mandatory) 10,394 10,315 Total Budgetary Resources $ 60,564 $ 57,533
Status of Budgetary Resources: Obligations incurred $ 38,691 $ 40,052 Unobligated balance, end of year: Apportioned 20,009 16,450 Exempt from apportionment 354 290 Unapportioned 1,510 741 Total unobligated balance, end of year 21,873 17,481 Total Budgetary Resources $ 60,564 $ 57,533
Change in Obligated Balance: Unpaid obligations, brought forward, Oct 1 (gross) $ 27,543 $ 27,235 Adjustments to unpaid obligations, start of year (+ or -) 148 336 Obligations incurred 38,691 40,052 Outlays (gross) (-) (38,001) (38,450) Actual transfers, unpaid obligations (net) (+ or -) — — Recoveries of prior year unpaid obligations (1,717) (1,630) Unpaid obligations, end of year $ 26,664 $ 27,543 Uncollected payments: Uncollected payments, federal sources, brought forward, October 1 (-) (784) (416) Adjustment to uncollected payments, federal sources, start of year (+ or -) — — Change in uncollected payments, federal sources (+ or -) (88) (368) Actual transfers, uncollected payments from federal source (net) (+ or -) — — Uncollected payments, federal sources, end of year (-) $ (872) $ (784) Memorandum (non-add) entries: Obligated balance, start of year (+ or -) $ 26,907 $ 26,819 Obligated balance, end of year (net) $ 25,792 $ 26,759 Budget Authority and Outlays, Net: Budget authority, gross (discretionary and mandatory) $ 41,862 $ 42,088 Actual offsetting collections (discretionary and mandatory) (-) (10,327) (9,947) Change in uncollected customer payments from federal sources (88) (368) (discretionary and mandatory) (+ or -) Budget authority, net (discretionary and mandatory) $ 31,447 $ 31,773
Outlays, gross (discretionary and mandatory) 38,001 38,450 Actual offsetting collections (discretionary and mandatory) (-) (10,327) (9,947) Outlays, net (discretionary and mandatory) 27,674 28,503 Distributed offsetting receipts (-) (452) (394) Agency outlays, net (discretionary and mandatory) $ 27,222 $ 28,109
The accompanying notes are an integral part of this financial statement.
82 | United States Department of State • 2013 Agency Financial Report NOTES TO THE PRINCIPAL FINANCIAL STATEMENTS | FINANCIAL SECTION
Notes to the Principal Financial Statements
Organization presented in accordance with the form and content Congress established the U.S. Department of requirements of the Office of Management and State (Department of State or Department), Budget (OMB) Circular A-136, Financial the senior Executive Branch department Reporting Requirements, revised. of the United States Government in 1789. The statements have been prepared from the The Department advises the President in the Department’s books and records, and are in formulation and execution of U.S. foreign accordance with the Department’s Accounting policy. The head of the Department, the Secretary Policies (the significant policies are summarized of State, is the President’s principal advisor on in this Note). The Department’s Accounting Policies foreign affairs. follow U.S. generally accepted accounting principles (GAAP) for Federal entities, as prescribed by the Federal Accounting 1 Summary of Significant Accounting Standards Advisory Board (FASAB). FASAB’s Statement of Policies Federal Financial Accounting Standards (SFFAS) No. 34, The Hierarchy of Generally Accepted Accounting Principles, Including the Application of Standards Issued by the Financial Reporting Entity and Basis of Consolidation Accounting Standards Board, incorporates the GAAP hierarchy The accompanying principal financial statements present the into FASAB’s authoritative literature. financial activities and position of the Department of State. Throughout the financial statements and notes, certain assets, The Statements include all General, Special, Revolving, Trust, liabilities, earned revenue, and costs have been classified and Deposit funds established at the Department of the as intragovernmental which is defined as transactions Treasury (Treasury) to account for the resources entrusted to made between two reporting entities within the Federal Department management, or for which the Department acts as Government. a fiscal agent or custodian (except fiduciary funds, see Note 19). Transactions are recorded on both an accrual and budgetary Included in the Department’s reporting entity is the U.S. basis. Under the accrual method of accounting, revenues Section of the International Boundary and Water Commission are recognized when earned and expenses are recognized (IBWC). Treaties in 1848, 1853, and 1970 established the when incurred without regard to receipt or payment of cash. boundary between the United States and Mexico that extends Budgetary accounting principles, on the other hand, are 1,954 miles, beginning at the Gulf of Mexico, following the designed to facilitate compliance with legal requirements Rio Grande a distance of 1,255 miles and eventually ending at and controls over the use of Federal funds. the Pacific Ocean below California. Established in 1889, the IBWC has responsibility for applying the boundary and water Revenues and Other Financing Sources treaties between the United States and Mexico and settling differences that may arise in their application. Department operations are financed through appropriations, reimbursement for the provision of goods or services to Basis of Presentation and Accounting other Federal agencies, proceeds from the sale of property, certain consular-related and other fees, and donations. In The statements are prepared as required by the Chief addition, the Department collects passport, visa, and other Financial Officers (CFO) Act of 1990, as amended by the consular fees that are not retained by the Department but are Government Management Reform Act of 1994. They are deposited directly to a Treasury account. The passport and
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revenue to ICASS and must cover overhead costs, operating expenses, and replacement costs for capital assets needed to carry on the operation. Proceeds from the sale of real property, vehicles, and other personal property are recognized as revenue when the proceeds are credited to the account that funded the asset. For non-capitalized property, the full amount realized is recognized as revenue. For capitalized property, revenue or loss is determined by whether the proceeds received were more or less than the net book value of the asset sold. The Department retains proceeds of sale, which are available for purchase of the same or similar category of property.
The Department is authorized to collect and retain certain user fees for machine-readable visas, expedited passport Congress established the U.S. Department of State, the senior executive processing, and fingerprint checks on immigrant visa department of the United States Government, in 1789. As head of the applicants. The Department is also authorized to credit Department, the Secretary of State is the President’s principal advisor the respective appropriations with (1) fees for the use of on foreign affairs, April 19, 2013. ©AP Image Blair House; (2) lease payments and transfers from the International Center Chancery Fees Held in Trust to the visa fees are reported as earned revenues on the Statement of International Center Project; (3) registration fees for the Net Cost and as a transfer-out of financing sources on the Office of Defense Trade Controls; (4) reimbursement for Statement of Changes in Net Position. international litigation expenses; and (5) reimbursement for training foreign government officials at the Foreign Congress annually enacts one-year and multi-year Service Institute. appropriations that provide the Department with the authority to obligate funds within the respective fiscal years Generally, donations received in the form of cash or financial for necessary expenses to carry out mandated program instruments are recognized as revenue at their fair value in activities. In addition, Congress enacts appropriations that the period received. Contributions of services are recognized are available until expended. All appropriations are subject if the services received (1) create or enhance non-financial to OMB apportionment as well as congressional restrictions. assets, or (2) require specialized skills that are provided by For financial statement purposes, appropriations are recorded individuals possessing those skills, which would typically as a financing source (i.e., Appropriations Used) and reported need to be purchased if not donated. Works of art, historical on the Statement of Changes in Net Position at the time they treasures, and similar assets that are added to collections are are recognized as expenditures. Appropriations expended for not recognized at the time of donation. If subsequently sold, capitalized property and equipment are recognized when the proceeds from the sale of these items are recognized in the asset is purchased. year of sale. More information on earned revenues can be found in Note 15. Work performed for other Federal agencies under reimbursable agreements is financed through the account Allocation Transfers providing the service and reimbursements are recognized as revenue when earned. Administrative support services at Allocation transfers are legal delegations by one Federal agency overseas posts are provided to other Federal agencies through of its authority to obligate budget authority and outlay funds the International Cooperative Administrative Support to another agency. The Department processes allocation Services (ICASS). ICASS bills for the services it provides transfers with other Federal agencies as both a transferring to agencies at overseas posts. These billings are recorded as (parent) agency of budget authority to a receiving (child)
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entity and as a receiving (child) agency of budget authority Accounts and Loans Receivable from a transferring (parent) entity. A separate fund account (allocation account) is created in the U.S. Treasury as a Intergovernmental Accounts Receivable are due principally subset of the parent fund account for tracking and reporting from other Federal agencies for ICASS services, reimbursable purposes. Subsequent obligations and outlays incurred by the agreements, and Working Capital Fund (WCF) services. child agency are charged to this allocation account as they Accounts and Loans Receivable from non-Federal entities execute the delegated activity on behalf of the parent agency. are primarily the result of repatriation loans and IBWC receivables for Mexico’s share of IBWC activities. The U.S. Generally, all financial activities related to allocation transfers and Mexican governments generally share the total costs of (i.e., budget authority, obligations, outlays) are reported in the IBWC projects in proportion to their respective benefits in financial statements of the parent agency. Transfers from the cases of projects for mutual control and utilization of the Executive Office of the President, for which the Department waters of a boundary river, unless the Governments have is the receiving agency, is an exception to this rule. Per OMB predetermined by treaty the division of costs according to guidance, the Department reports all activity relative to these the nature of a project. allocation transfers in its financial statements. The Department allocates funds, as the parent, to the Departments of Defense, The Department provides repatriation loans for destitute Labor (DOL), Treasury, Health and Human Services (HHS); American citizens overseas whereby the Department becomes the Peace Corps; and the U.S. Agency for International the lender of last resort. These loans provide assistance to Development (USAID). In addition, the Department pay for return transportation, food and lodging, and medical receives allocation transfers, as the child, from USAID. expenses. The borrower executes a promissory note without collateral. Consequently, the loans are made anticipating a low rate of recovery. Interest, penalties, and administrative Fund Balances with Treasury and Cash and fees are assessed if the loan becomes delinquent. Other Monetary Assets Accounts and Loans Receivable from non-Federal entities are The Fund Balances with Treasury are available to pay subject to the full debt collection cycle and mechanisms, e.g., accrued liabilities and finance authorized commitments salary offset, referral to collection agents, and Treasury offset. relative to goods, services, and benefits. The Department In addition, Accounts Receivable from non-Federal entities does not maintain cash in commercial bank accounts for are assessed interest, penalties, and administrative fees if the funds reported in the Consolidated Balance Sheet, they become delinquent. Interest and penalties are assessed except for the Emergencies in the Diplomatic and Consular at the Current Value of Funds Rate established by Treasury. Services, Office of Foreign Missions, Foreign Service Accounts Receivable is reduced to net realizable value by National Defined Contributions Retirement Fund, and an Allowance for Uncollectible Accounts. This allowance is the International Center. Treasury processes domestic cash recorded using aging methodologies based on an analysis receipts and disbursements on behalf of the Department of past collections and write-offs. See Note 5 for more and the Department’s accounting records are reconciled information on Accounts and Loans Receivable, Net. with those of Treasury on a monthly basis.
The Department operates two Financial Service Centers Interest Receivable located in Bangkok, Thailand and Charleston, South Carolina. These provide financial support for the Department and other Interest earned on investments, but not received as of Federal agencies’ operations overseas. The U.S. Disbursing September 30, is recognized as interest receivable. Officer at each Center has the delegated authority to disburse funds on behalf of the Treasury. See Notes 3 and 6.
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They are purchased and redeemed at par, which is their carrying value on the Consolidated Balance Sheet.
Investments by the Department’s Gift, Israeli Arab Scholarship, Eisenhower Exchange Fellowship, and Middle Eastern-Western Dialogue accounts are in U.S. Treasury securities. Interest on these investments is paid semi-annually at various rates. These investments are reported at acquisition cost, which equals the face value net of unamortized discounts or premiums. Discounts and premiums are amortized over the life of the security using the straight-line method for Gift Funds investments, and effective interest method for the other accounts. Additional information on Investments can be found in Note 4.
The Art Bank Program was established in 1984 to acquire artworks that could be displayed throughout the Department’s Property and Equipment offices and annexes. It includes “58th and Lindbergh” (2007), Larry Francis, gouache. Real Property Real property assets primarily consist of facilities used for Advances and Prepayments U.S. diplomatic missions abroad and capital improvements to these facilities, including unimproved land; residential Payments made in advance of the receipt of goods and and functional-use buildings such as embassy/consulate services are recorded as advances or prepayments, and office buildings; office annexes and support facilities; and recognized as expenses when the related goods and construction-in-progress. Title to these properties is held under services are received. Prepayments are made principally various conditions including fee simple, restricted use, crown to other Federal entities for future services. Advances are lease, and deed of use agreement. Some of these properties are made to Department employees for official travel, salary considered historical treasures and are considered multi-use advances to Department employees transferring to overseas heritage assets. These items are reported on the Consolidated assignments, and other miscellaneous prepayments and Balance Sheet, in Note 7 to the financial statements, and in advances for future services. Advances and prepayments the Heritage Assets Section. are reported as Other Assets on the Consolidated Balance Sheet. Additional information may be found in Note 8. The Department also owns several domestic real properties, including the National Foreign Affairs Training Center Investments (Arlington, Va.); the International Center (Washington, D.C.); the Charleston Financial Services Center (S.C.); the Beltsville The Department has several accounts that have the authority Information Management Center (Md.); the Florida Regional to invest cash resources. For these accounts, the cash resources Center (Ft. Lauderdale); and consular centers in Charleston, not required to meet current expenditures are invested in S.C., Portsmouth, N.H., and Williamsburg, Ky. The IBWC interest-bearing obligations of the U.S. Government. These owns buildings and structures related to its boundary investments consist of U.S. Treasury special issues and preservation, flood control, and sanitation programs. securities. Special issues are unique public debt obligations for purchase exclusively by the Foreign Service Retirement Buildings and structures are carried at either actual or and Disability Fund and for which interest is computed estimated historical cost. The Department capitalizes all costs and paid semi-annually on June 30 and December 31. for constructing new buildings and building acquisitions
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regardless of cost, and all other improvements of $1 million The Department also maintains a large vehicle fleet that or more. Costs incurred for constructing new facilities, major operates overseas. Many vehicles require armoring for security rehabilitations, or other improvements in the design or reasons. For some locations, large utility vehicles are used construction stage are recorded as construction-in-progress. instead of conventional sedans. In addition, the Department After these projects are completed, costs are transferred to contracts with firms to provide support in strife-torn areas, Buildings and Structures or Leasehold Improvements, as such as Iraq and Afghanistan. Contractor support includes appropriate. Depreciation is computed on a straight-line basis the purchase and operation of armored vehicles. Under over the asset’s estimated life and begins when the property is the terms of the contracts, the Department has title to placed into service. The estimated useful lives for real property the contractor-held vehicles. are as follows: Personal property and equipment with an acquisition Asset Category Estimated Useful Life cost of $25,000 or more, and a useful life of two or more Land Improvements 30 years years, is capitalized at cost. Additionally, all vehicles are Buildings and Structures 10 to 50 years capitalized, as well as ADP software with cost of $500,000 or more. Except for contractor-held vehicles in Iraq and Assets Under Capital Lease Lease term or 30 years Afghanistan, depreciation is calculated on a straight-line Leasehold Improvements Lesser of lease term or 10 years basis over the asset’s estimated life and begins when the property is placed into service. Contractor-held vehicles in Iraq and Afghanistan, due to the harsh operating conditions, Personal Property are depreciated on a double-declining balance basis. The Personal property consists of several asset categories including estimated useful lives for personal property are as follows: aircraft, vehicles, security equipment, communication equipment, automated data processing (ADP) equipment, Asset Category Estimated Useful Life reproduction equipment, and software. The Department holds title to these assets, some of which are operated in Aircraft: unusual conditions, as described below. INL air wing managed 10 years Host-country managed 5 years The Department’s Bureau of International Narcotics and Vehicles: Law Enforcement (INL) uses aircraft to help eradicate and Department managed 3 to 6 years 1 stop the flow of illegal drugs. To accomplish its mission, INL Contractor-held in Iraq and Afghanistan 2 /2 years maintains an aircraft fleet that is one of the largest Federal, Security Equipment 3 to 15 years nonmilitary fleets. Most of the aircraft are under direct INL Communication Equipment 3 to 20 years air wing management. However, a number of aircraft are Automated Data Processing Equipment 3 to 6 years managed by host-countries. The Department holds title Reproduction Equipment 3 to 15 years to most of the aircraft under these programs and requires Software Estimated useful congressional notification to transfer title for any aircraft to life or 5 years foreign governments. INL contracts with firms to provide maintenance support depending on whether the aircraft are See Note 7, Property and Equipment, Net, for additional INL air wing managed or host-country managed. INL air information. wing managed aircraft are maintained to Federal Aviation Administration standards that involve routine inspection, as well as scheduled maintenance and replacements of certain Capital Leases parts after given hours of use. Host-country managed aircraft Leases are accounted for as capital leases if they meet one are maintained to host-country requirements, which are less of the following criteria: (1) the lease transfers ownership than Federal Aviation Administration standards. of the property by the end of the lease term; (2) the lease
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contains an option to purchase the property at a bargain Accrued Annual, Sick, and Other Leave price; (3) the lease term is equal to or greater than 75 percent of the estimated useful life of the property; or (4) at the Annual leave is accrued as it is earned by Department inception of the lease, the present value of the minimum lease employees, and the accrual is reduced as leave is taken. payment equals or exceeds 90 percent of the fair value of the Throughout the year, the balance in the accrued annual leave leased property. The initial recording of a lease’s value (with liability account is adjusted to reflect current pay rates. The a corresponding liability) is the lesser of the net present value amount of the adjustment is recorded as an expense. Current of the lease payments or the fair value of the leased property. or prior year appropriations are not available to fund annual Capital leases that meet criteria (1) or (2) are depreciated over leave earned but not taken. Funding occurs in the year the the useful life of the asset (30 years). Capital leases that meet leave is taken and payment is made. Sick leave and other criteria (3) or (4) are depreciated over the term of the lease. types of non-vested leave are expensed as taken. Capital leases are amortized over the term of the lease; if the lease has an indefinite term, the term is capped at 50 years. Employee Benefit Plans Additional information on capital leases is disclosed in Retirement Plans: Civil Service employees participate in Note 12, Leases. either the Civil Service Retirement System (CSRS) or the Federal Employees Retirement System (FERS). Members of Stewardship Property and Equipment the Foreign Service participate in either the Foreign Service Stewardship Property and Equipment, or Heritage Assets, Retirement and Disability System (FSRDS) or the Foreign are assets that have historical or natural significance; are of Service Pension System (FSPS). cultural, educational, or artistic importance; or have signifi- cant architectural characteristics. They are generally consid- Employees covered under CSRS contribute 7 percent of their ered priceless and are expected to be preserved indefinitely. salary; the Department contributes 7 percent. Employees As such, these assets are reported in terms of physical units covered under CSRS also contribute 1.45 percent of their salary rather than cost or other monetary values. See Note 7. to Medicare insurance; the Department makes a matching contribution. On January 1, 1987, FERS went into effect Grants pursuant to Public Law No. 99-335. Most employees hired after December 31, 1983, are automatically covered by FERS The Department awards educational, cultural exchange, and and Social Security. Employees hired prior to January 1, 1984, refugee assistance grants to various individuals, universities, were allowed to join FERS or remain in CSRS. Employees and non-profit organizations. Budgetary obligations participating in FERS contribute 0.8 percent of their salary, are recorded when grants are awarded. Grant funds are with the Department making contributions of 11.2 percent. disbursed in two ways: grantees draw funds commensurate FERS employees also contribute 6.2 percent to Social Security with their immediate cash needs via HHS’ Payments and 1.45 percent to Medicare insurance. The Department Management System; or grantees submit invoices. In makes matching contributions to both. A primary feature of both cases, the expense is recorded upon disbursement. FERS is that it offers a Thrift Savings Plan (TSP) into which the Department automatically contributes 1 percent of pay and Accounts Payable matches employee contributions up to an additional 4 percent.
Accounts payable represent the amounts accrued for contracts Foreign Service employees hired prior to January 1, 1984 for goods and services received but unpaid at the end of the participate in FSRDS, with certain exceptions. FSPS was fiscal year and unreimbursed grant expenditures. In addition to established pursuant to Section 415 of Public Law No. accounts payables recorded through normal business activities, 99-335, which became effective June 6, 1986. Foreign Service unbilled payables are estimated based on historical data. employees hired after December 31, 1983 participate in FSPS with certain exceptions. FSRDS employees contribute
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7.25 percent of their salary; the Department contributes retirement health benefits, and life insurance for employees 7.25 percent. FSPS employees contribute 1.35 percent of their covered by these programs. The additional costs are not salary; the Department contributes 20.22 percent. FSRDS owed or paid to OPM, and thus are not reported on the and FSPS employees contribute 1.45 percent of their salary to Consolidated Balance Sheet as a liability. Instead, they are Medicare; the Department matches their contribution. FSPS reported as an imputed financing source from costs absorbed employees also contribute 6.2 percent to Social Security; the from others on the Consolidated Statement of Changes in Department makes a matching contribution. Similar to FERS, Net Position. FSPS also offers the TSP.
Foreign Service National (FSN) employees at overseas posts Future Workers’ Compensation Benefits who were hired prior to January 1, 1984, are covered under The Federal Employees’ Compensation Act (FECA) CSRS. FSN employees hired after that date are covered under provides income and medical cost protection to cover a variety of local government plans in compliance with the host Federal employees injured on the job or who have incurred country’s laws and regulations. In cases where the host country a work-related occupational disease, and beneficiaries of does not mandate plans or the plans are inadequate, employees employees whose death is attributable to job-related injury are covered by plans that conform to the prevailing practices of or occupational disease. The DOL administers the FECA comparable employers. program. DOL initially pays valid claims and bills the Health Insurance: Most American employees participate in employing Federal agency. DOL calculates the actuarial the Federal Employees Health Benefits Program (FEHBP), a liability for future workers’ compensation benefits and voluntary program that provides protection for enrollees and reports to each agency its share of the liability. eligible family members in cases of illness and/or accident. Under FEHBP, the Department contributes the employer’s Foreign Service Retirement and Disability Fund share of the premium as determined by the U.S. Office of Personnel Management (OPM). See Note 10, After-Employment Benefit Liability, for the Department’s accounting policy for Foreign Service Life Insurance: Unless specifically waived, employees are retirement-related benefits and the Actuarial Present covered by the Federal Employees Group Life Insurance Value of Projected Plan Benefits for the Foreign Service Program (FEGLIP). FEGLIP automatically covers eligible Retirement and Disability Program. employees for basic life insurance in amounts equivalent to an employee’s annual pay, rounded up to the next thousand dollars plus $2,000. The Department pays one-third and Foreign Service Nationals’ After-Employment Benefits employees pay two-thirds of the premium. Enrollees and their family members are eligible for additional insurance Defined Contributions Fund (DCF) – This fund provides coverage but the enrollee is responsible for the cost of the retirement benefits for FSN employees in countries where additional coverage. the Department has made a public interest determination to discontinue participation in the Local Social Security Other Post Employment Benefits: The Department System. Title 22, Foreign Relations and Intercourse, Section does not report CSRS, FERS, FEHBP, or FEGLIP assets, 3968, Local Compensation Plans, provides the authority to accumulated plan benefits, or unfunded liabilities applicable the Department to establish such benefits as part of a total to its employees; OPM reports this information. As required compensation plan for these employees. by SFFAS No. 5, Accounting for Liabilities of the Federal Government, the Department reports the full cost of employee Defined Benefit Plans– The Department has implemented benefits for the programs that OPM administers. The various arrangements for defined benefit pension plans in Department recognizes an expense and imputed financing other countries, for the benefit of some FSN employees. source for the annualized unfunded portion of CSRS, post- Some of these plans supplement the host country’s equivalent
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to U.S. social security, others do not. While none of these Unexpended Appropriations – Unexpended appropria- supplemental plans are mandated by the host country, some tions is the sum of undelivered orders and unobligated are substitutes for optional tiers of a host country’s social balances. Undelivered orders represent the amount of security system. obligations incurred for goods or services ordered, but not yet received. An unobligated balance is the amount Lump Sum Retirement and Severance – Under some local available after deducting cumulative obligations from total compensation plans, FSN employees are entitled to receive budgetary resources. As obligations for goods or services a lump-sum separation payment when they resign, retire, or are incurred, the available balance is reduced. otherwise separate through no fault of their own. The amount of the payment is generally based on length of service, rate of Cumulative Results of Operations – The cumulative pay at the time of separation, and the type of separation. results of operations include (1) the accumulated difference between revenues and financing sources International Organization Liabilities less expenses since inception; (2) the Department’s investment in capitalized assets financed by appropriation; The United States is a member of the United Nations (3) donations; and (4) unfunded liabilities, whose (UN) and other international organizations and supports liquidation may require future congressional UN peacekeeping operations. As such, the United States appropriations or other budgetary resources. either contributes to voluntary funds or an assessed share of the budgets and expenses of these organizations and Net position of funds from dedicated collections (formerly activities. These payments are funded through congressional “earmarked funds”) is separately disclosed. See Note 14. appropriations to the Department. The purpose of these appropriations is to ensure continued American leadership Foreign Currency within those organizations and activities that serve important U.S. interests. Funding by appropriations for dues assessed Accounting records for the Department are maintained in for certain international organizations is not received until U.S. dollars, while a significant amount of the Department’s the fiscal year following assessment. These commitments are overseas expenditures are in foreign currencies. For regarded as funded only when monies are authorized and accounting purposes, overseas obligations and disbursements appropriated by Congress. For financial reporting purposes, are recorded in U.S. dollars based on the rate of exchange the amounts assessed, pledged, and unpaid are reported as of the date of the transaction. Foreign currency payments as liabilities of the Department. Additional information are made by the U.S. Disbursing Office. is disclosed in Note 11. Fiduciary Activities Contingent Liabilities Fiduciary activities are the collection or receipt, and the Contingent liabilities are liabilities where the existence or management, protection, accounting, investment, and amount of the liability cannot be determined with certainty disposition by the Federal Government of cash or other pending the outcome of future events. The Department assets in which non-Federal individuals or entities have recognizes contingent liabilities when the liability is an ownership interest that the Federal Government must probable and reasonably estimable. See Note 13. uphold. The Department’s fiduciary activities are not recognized on the principal financial statements, but are Net Position reported on schedules as a note to the financial statements. The Department’s fiduciary activities include receiving The Department’s net position contains the following contributions from donors for the purpose of providing components: compensation for certain claims within the scope of an
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established agreement, investment of contributions into statements. As a result, the following funds were previously Treasury securities, and disbursement of contributions reported as Earmarked Funds and are now included in received within the scope of the established agreement. Other Funds on the Balance Sheet. See Note 19. Treasury Fund Symbol Description Use of Estimates 19X5497 Foreign Service National Defined Contributions Fund The preparation of financial statements in conformity 19X8186 Foreign Service Retirement and Disability Fund with GAAP requires management to make estimates and 19X8340 Foreign Service National Separation Liability Trust Fund assumptions, and exercise judgment that affects the reported 19X8341 Foreign Service National Separation Liability Trust Fund amounts of assets, liabilities, net position, and disclosure of 19X8812 Gifts and Bequests, National Commission on Educational, Scientific and Cultural Cooperation contingent liabilities as of the date of the financial statements, and the reported amounts of revenues, financing sources, See Note 14 for additional information on Funds from expenses, and obligations incurred during the reporting Dedicated Collections. period. These estimates are based on management’s best knowledge of current events, historical experience, actions Environmental Liability associated with Asbestos Cleanup: the Department may take in the future, and various other FASAB Technical Bulletins (TB) 2006-1, 2009-1, and 2011-2 assumptions that are believed to be reasonable under the became effective for fiscal years beginning after September 30, circumstances. Due to the size and complexity of many of 2012. TB 2006-1 requires the recognition of a liability for the Department’s programs, the estimates are subject to a the cleanup costs associated with friable and non-friable wide range of variables, including assumptions on future asbestos containing materials. The environmental liability for economic and financial events. Accordingly, actual results asbestos-related cost is reported on the Balance Sheet and on could differ from those estimates. the Statement of Changes in Net Position as an adjustment to cumulative results of operations for prior period adjustments Comparative Data due to changes in accounting principles.
Certain Fiscal Year 2012 amounts have been reclassified The Department has elected to recognize the estimated total to conform to the Fiscal Year 2013 presentation. cleanup cost as a liability upon implementation of TB 2006-1 as the majority of the Department’s related property and equipment has been in service for a substantial portion of Change in Accounting Principles its estimated useful life. See Note 9.
Dedicated Collections: SFFAS No. 43, Funds from Dedicated Collections: Amending Statement of Federal Financial Accounting Standards 27, Identifying and Reporting Earmarked Funds, was issued by the FASAB on June 1, 2012. SFFAS No. 43 became effective for fiscal years beginning after September 30, 2012. The standard changes the term “earmarked funds” to “funds from dedicated collections” and defines a Fund from Dedicated Collections as funds that contain at least one source of funding external to the Federal Government. The standard excludes funds established to account for pensions, other retirement benefits, other postemployment or other benefits provided for federal employees and requires a restatement of the FY 2012
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2 Assets
The Department’s assets are classified as entity or non- September 30, 2013 and 2012, were $15 million, for entity. Entity assets are those assets that the Department amounts in the Chancery Development Trust Account. has authority to use for its operations. Non-entity assets These items are included in Cash and Other Monetary Assets are those held by the Department that are not available (See Note 6, Cash and Other Monetary Assets for further for use in its operations. Total non-entity assets at both information).
3 Fund Balances with Treasury
Fund Balances with Treasury at September 30, 2013 and 2012, are summarized below (dollars in millions).
Fund Balances 2013 2012 Status of Fund Balances 2013 2012 Appropriated Funds $ 45,451 $ 42,484 Unobligated Balances Available $ 20,363 $ 16,740 Revolving Funds 1,558 1,265 Unobligated Balances Unavailable 1,510 741 Trust Funds 379 324 Obligated Balances not yet Disbursed 25,668 26,741 Special Funds 153 149 Total Unobligated and Obligated 47,541 44,222 Deposit & Receipt Accounts 16 1
Total $ 47,557 $ 44,223 Deposit and Receipt Funds 16 1 Total $ 47,557 $ 44,223
The Ambassador’s residence in Hanoi, Vietnam was built in 1921. Its recent renovation preserves the property’s historical integrity. The house was designed by M. LaCollonge, the facade is defined by tall windows, wrought iron balconies, and a high-style slate
mansard roof punctuated with dormers. Department of State/OBO
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4 Investments
SUMMARY OF INVESTMENTS
Investments at September 30, 2013 and 2012, are summarized below (dollars in millions). All investments are classified as Intragovernmental Securities. Net Market Maturity Interest Interest At September 30, 2013: Investment Value Dates Rates Range Receivable Non-Marketable, Par Value: Special Issue Securities $ 17,364 $ 17,364 2014-2028 1.375%-6.500% $ 163 Subtotal 17,364 17,364 163
Non-Marketable, Market Based: Israeli Arab Scholarship Fund 5 5 2015 0.250% — Eisenhower Exchange Fellowship Fund 8 8 2014-2019 3.000%-8.875% — Middle Eastern-Western Dialogue Fund 15 15 2013-2019 0.250%-1.250% — Gift Funds, Treasury Bills 16 16 2014-2017 0.750%-3.125% — Subtotal 44 44 — Total Investments $ 17,408 $ 17,408 $ 163
Net Market Maturity Interest Interest At September 30, 2012: Investment Value Dates Rates Range Receivable Non-Marketable, Par Value: Special Issue Securities $ 16,893 $ 16,893 2013-2027 1.375%-5.875% $ 170 Subtotal 16,893 16,893 170
Non-Marketable, Market Based: Israeli Arab Scholarship Fund 4 4 2014-2016 0.250%-0.875% — Eisenhower Exchange Fellowship Fund 8 8 2013-2019 3.000%-8.875% — Middle Eastern-Western Dialogue Fund 15 15 2012-2019 0.250%-4.250% — Gift Funds, Treasury Bills 8 8 2012-2019 2.625%-3.625% — Subtotal 35 35 — Total Investments $ 16,928 $ 16,928 $ 170
The Department’s activities that have the authority to invest Department as evidence of its receipts. Treasury securities are cash resources are Funds from Dedicated Collections (see an asset to the Department and a liability to the Treasury. Note 14). The Federal Government does not set aside assets Because the Department and the U.S. Treasury are both parts to pay future benefits or other expenditures associated with of the Government, these assets and liabilities offset each funds from dedicated collections. The cash receipts collected other from the standpoint of the Government as a whole. from the public for funds from dedicated collections are For this reason, they do not represent an asset or liability deposited in the U.S. Treasury, which uses the cash for general in the U.S. Government-wide financial statements. Government purposes. Treasury securities are issued to the (continued on next page)
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NOTE 4: Investments (continued) Treasury securities provide the component entity with out of accumulated cash balances, by raising taxes or other authority to draw upon the U.S. Treasury to make future receipts, by borrowing from the public or repaying less debt, benefits payments or other expenditures. When the Depart- or by curtailing other expenditures. The Government finances ment requires redemption of these securities to make most expenditures in this way. expenditures, the Government finances those expenditures
5 Accounts and Loans Receivable, Net
The Department’s Accounts and Loans Receivable, Net at September 30, 2013 and 2012, are summarized here (dollars in millions). All are entity receivables.
2013 2012
Entity Allowance for Net Entity Allowance for Net Receivables Uncollectible Receivables Receivables Uncollectible Receivables
Intragovernmental Accounts Receivable $ 362 $ (51) $ 311 $ 374 $ (53) $ 321 Non-Intragovernmental Accounts and Loans Receivable 234 (40) 194 175 (34) 141
Total Receivables $ 596 $ (91) $ 505 $ 549 $ (87) $ 462
The allowances for uncollectible accounts are recorded using aging methodologies based on analysis of historical collections and write-offs.
The total accounts and loans receivable for FY 2013, net of allowance for uncollectible accounts, is $505 million. This balance consists of $362 million in Federal intragovernmental reimbursable agreements for providing goods and services to other Federal agencies. The $234 million in accounts and loans receivables due from non- Federal entities consists of $2 million in repatriation loans and associated administration fees. Repatriation Loans enable destitute American citizens overseas to return to the United States. The remaining $232 million consist mainly of civil monitory fines and penalties and Value Added Taxes The Athens, Greece Chancery was designed by one of the great (VAT). Civil monitory fines and penalties are assessed masters of 20th Century architecture, Walter Gropius. The on individuals for such infractions as violating the terms Department is currently planning a rehabilitation of the facility, and munitions licenses, exporting unauthorized defense and intends to upgrade the facility to meet modern standards, articles and services, and violation of manufacturing licenses while maintaining the historic character of Gropius’ original
agreements. VAT receivables are for taxes paid on purchases design. Department of State/OBO overseas in which the Department has reimbursable agreements with the country for taxes it pays.
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6 Cash and Other Monetary Assets
The Cash and Other Monetary Assets at September 30, 2013 and 2012, are summarized below(dollars in millions). There are no restrictions on entity cash. Non-entity cash is restricted as discussed below.
2013 2012
Entity Non-Entity Entity Non-Entity Assets Assets Total Assets Assets Total After-Employment Benefit Assets $ 135 $ — $ 135 $ 123 $ — $ 123 Emergencies in the Diplomatic and Consular Service 5 — 5 5 — 5 Chancery Development Trust Accounts: Treasury Bills, at par — 15 15 — 15 15 Unamortized Discount — — — — — —
Total $ 140 $ 15 $ 155 $ 128 $ 15 $ 143
FOREIGN SERVICE NATIONAL AFTER- CHANCERY DEVELOPMENT TRUST ACCOUNT EMPLOYMENT BENEFIT ASSETS Lease fees collected from foreign governments by the The Defined Contributions Fund (FSN DCF) provides Department for the International Chancery Center are retirement benefits for FSN employees in countries where deposited into an escrow account called the Chancery the Department has made a public interest determination Development Trust Account. The funds are unavailable to to discontinue participation in the Local Social Security the Department at time of deposit, and do not constitute System (LSSS). Title 22, Foreign Relations and Intercourse, expendable resources until funds are necessary for additional Section 3968, Local Compensation Plans, provides the work on the Center project. The Chancery Development authority to the Department to establish such benefits and Trust account invests in six-month marketable Treasury bills identifies as part of a total compensation plan for these issued at a discount and redeemable for par at maturity. employees. The FSN DCF is administered by a third party A corresponding liability for the amounts is reflected as who invests excess funds in Treasury securities on behalf Funds Held in Trust and Deposit amounts. of the Department. The other monetary assets reported for the FSN DCF is $135 million and $123 million as of September 30, 2013 and 2012, respectively.
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7 Property and Equipment, Net
Property and Equipment, Net balances at September 30, 2013 and 2012, are shown in the following table (dollars in millions).
2013 2012
Accumulated Accumulated Major Classes Cost Depreciation Net Value Cost Depreciation Net Value Real Property: Overseas — Land and Land Improvements $ 2,216 $ (51) $ 2,165 $ 2,131 $ (52) $ 2,079 Buildings and Structures 15,276 (5,683) 9,593 13,889 (5,232) 8,657 Construction-in-Progress 2,980 — 2,980 2,685 — 2,685 Assets Under Capital Lease 108 (39) 69 79 (29) 50 Leasehold Improvements 473 (281) 192 407 (249) 158 Domestic — Structures, Facilities and Leaseholds 1,191 (379) 812 1,121 (347) 774 Construction-in-Progress 184 — 184 222 — 222 Land and Land Improvements 81 (7) 74 81 (7) 74
Total — Real Property 22,509 (6,440) 16,069 20,615 (5,916) 14,699
Personal Property: Aircraft 842 (348) 494 929 (430) 499 Vehicles 1,007 (447) 560 913 (424) 489 Communication Equipment 27 (18) 9 30 (23) 7 ADP Equipment 135 (86) 49 106 (75) 31 Reproduction Equipment 11 (7) 4 12 (7) 5 Security 187 (74) 113 182 (64) 118 Software 404 (320) 84 388 (296) 92 Software-in-Development 98 — 98 66 — 66 Other Equipment 178 (99) 79 176 (95) 81
Total — Personal Property 2,889 (1,399) 1,490 2,802 (1,414) 1,388
Total Property and Equipment, Net $ 25,398 $ (7,839) $ 17,559 $ 23,417 $ (7,330) $ 16,087
(continued on next page)
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NOTE 7: Property and Equipment, Net (continued)
STEWARDSHIP PROPERTY AND EQUIPMENT; There are eight separate collections of art and furnishings: HERITAGE ASSETS the Diplomatic Reception Rooms Collection, the Art Bank Program, Art in Embassies Program, Cultural Heritage The Department maintains collections of art, furnishings Collection, the Library Rare and Special Book Collection, and real property (Culturally Significant Property) that are the Secretary of State’s Register of Culturally Significant held for public exhibition, education and official functions Property, the U.S. Diplomacy Center, and the Blair House. for visiting chiefs of State, heads of government, foreign The collections, activity of which is shown in the following ministers and other distinguished foreign and American table and described more fully in the Required Supplementary guests. As the lead institution conducting American Information and Other Information sections of this report, diplomacy, the Department uses this property to promote consist of items that were donated, purchased using donated or national pride and the distinct cultural diversity of American appropriated funds, or on loan from individuals, organizations artists, as well as to recognize the historical, architectural and and museums. The Department provides protection and cultural significance of America’s holdings overseas. preservation services to maintain all Heritage Assets in good condition forever as part of America’s history.
HERITAGE ASSETS For the Year Ended September 30, 2013
Cultural Diplomatic Reception Art Bank Art in Embassies Heritage Rooms Collection Program Program Collection Description Collectibles - Art and Collection of American Collectibles - American Collections include furnishings from the works of art on paper works of art fine and decorative period 1750 to 1825 arts and other cultural objects Acquisition and Acquired through Acquired through Acquired through The program provides Withdrawal donation or purchase purchase. purchase or donation. assessment, preservation, using donated funds. Excess items are sold. and restoration as Excess items are sold. needed. Condition Good to excellent Good to excellent Good to excellent Good to excellent Number of Assets - 3,483 2,401 968 15,089 9/30/2011 Acquisitions 11 51 25 2,633 Adjustments (1,718) (6) Disposals 9 1 852 Number of Assets - 1,767 2,451 987 16,870 9/30/2012 Deferred Maintenance - N/A N/A N/A N/A 9/30/2012 Acquisitions 14 22 73 606 Adjustments 14 2 629 Disposals 13 50 6 205 Number of Assets - 1,782 2,425 1,054 17,900 9/30/2013 Deferred Maintenance - N/A N/A N/A N/A 9/30/2013 (continued on next page)
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Secretary of State John Kerry shows NATO Secretary General Anders Fogh Rasmussen the desk on which the Treaty of Paris was signed in 1783 in the John Quincy Adams State Drawing Room at the Department of State in Washington, D.C., May 30, 2013.
Department of State
HERITAGE ASSETS (continued) For the Year Ended September 30, 2013
Library Rare & Secretary of State’s Special Book Register of Culturally U.S. Diplomacy Collection Significant Property Center Blair House Description Collectibles Noncollection Collectibles - Historic Collections of fine and decorative - Rare books - Buildings of artifacts, art and arts, furnishings, artifacts, other and other historic, cultural, other cultural objects cultural objects, rare books and publications of or architectural archival materials in national historic value significance historic landmark buildings Acquisition and Acquired through Acquired through Acquired through Acquired through purchase, Withdrawal donation. purchase. Excess items donation or transfer. donation or transfer. Excess are sold. Excess items are items are transferred or disposed transferred. of via public sale. Condition Poor to good Poor to excellent Good to excellent Good to excellent Number of Assets - 1,000 20 6,308 2,017 9/30/2011 Acquisitions 40 5 527 9 Adjustments 32 (4,114) 584 Disposals 20 2 1 Number of Assets - 1,052 25 2,719 2,609 9/30/2012 Deferred Maintenance - N/A $0 N/A N/A 9/30/2012 Acquisitions 13 107 Adjustments 13 8 Disposals 4 12 1 Number of Assets - 1,061 25 2,827 2,616 9/30/2013 Deferred Maintenance - N/A $1,737,000 N/A N/A 9/30/2013
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8 Advances, Prepayments, and Other Assets
2013 2012 The Department’s Other Assets include advances and Intragovernmental Assets: prepayments in support of programs including HIV/ Other Advances and Prepayments $ 822 $ 918 AIDS, Child Health and Survival, Diplomatic and Consular, and Overseas Buildings Operations plus Non-Intragovernmental Advances: salary/travel advances to employees and inventory. The Salary Advances 9 9 Department’s Other Assets as of September 30, 2013 and Travel Advances 12 13 2012, are summarized to the right (dollars in millions). Other Advances and Prepayments 562 608 Inventory 15 11 Total Other Assets $ 1,420 $ 1,559
9 Other Liabilities
The Department’s Other Liabilities at September 30, 2013 and 2012, are summarized below(dollars in millions).
2013 2012 Current Non-Current Total Current Non-Current Total Intragovernmental Deferred Revenue $ 258 $ — $ 258 $ 219 $ — $ 219 Custodial Liability 60 — 60 87 — 87 Other Liabilities 47 — 47 42 — 42 Total Intragovernmental 365 — 365 348 — 348
Federal Employees Compensation Act Benefits 88 — 88 79 — 79 Capital Lease Liability 11 78 89 8 62 70 Accrued Salaries Payable 244 — 244 223 — 223 Contingent Liability — 30 30 — 10 10 Pension Benefits Payable 59 — 59 58 — 58 Accrued Annual Leave — 354 354 — 347 347 Funds Held in Trust and Deposit Accounts — 15 15 — 15 15 Environmental Liability — 156 156 — — — Other Liabilities 148 — 148 153 — 153 Deferred Revenues 2 — 2 13 — 13 Subtotal 552 633 1,185 534 434 968 Total Other Liabilities $ 917 $ 633 $ 1,550 $ 882 $ 434 $ 1,316
Environmental Liability associated with Asbestos Cleanup: of Federal Financial Accounting Standards (SFFAS) No. 5, The Department has estimated both friable, $18 million, and Accounting for Liabilities of the Federal Government; SFFAS No. 6, nonfriable, $138 million, asbestos-related cleanup costs and Accounting for Property, Plant, and Equipment, Chapter 4: Cleanup recognized a liability and related expense for those costs that Costs; and Technical Release (TR) 2, Determining Probable and are both probable and reasonably estimable as of September 30, Reasonably Estimable for Environmental Liabilities in the Federal 2013, consistent with the current guidance in Statement Government. See Note 1.
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NOTE 9: Other Liabilities (continued) Liabilities Not Covered by Budgetary Resources 2013 2012 Intragovernmental Liabilities The Department’s liabilities are classified as covered Unfunded FECA Liability $ 21 $ 20 by budgetary resources or not covered by budgetary Custodial Liability 60 87 resources. Liabilities not covered by budgetary Total Intragovernmental Liabilities 81 107 resources result from the receipt of goods and International Organizations Liabilities 1,261 1,100 services, or occurrence of eligible events in the After-Employment Benefit Liability: current or prior periods, for which revenue or other Foreign Service Retirment Actuarial Liability 2,592 2,423 funds to pay the liabilities have not been made Foreign Service Nationals (FSN): available through appropriations or current earnings Defined Contributions Fund 135 123 of the Department. The liabilities in this category at Defined Benefit Plans 79 106 September 30, 2013 and 2012, are summarized to Lump Sum Retirement and Voluntary Services 285 230 the right (dollars in millions). Total After-Employment Benefit Liability 3,091 2,882 Accrued Annual Leave 354 347 Environmental Liability 156 — Capital Lease Liability 89 70 Contingent Liability 30 10 Other Liabilities 71 174 Total Liabilities Not Covered By Budgetary Resources 5,133 4,690 Total Liabilities Covered By Budgetary Resources 21,262 20,737 Total Liabilities $ 26,395 $ 25,427
10 After-Employment Benefit Liability
The Department of State provides after-employment FOREIGN SERVICE RETIREMENT benefits to both Foreign Service Officers (FSOs) and AND DISABILITY FUND Foreign Service Nationals (FSNs). FSOs participate in the Foreign Service Retirement and Disability pension plans. The Foreign Service Retirement and Disability Fund finances FSN employees participate in a variety of plans established the operations of the FSRDS and the FSPS. The FSRDS and by the Department in each country based upon prevailing the FSPS are defined-benefit, single-employer plans. FSRDS compensation practices in the host country. The table below was originally established in 1924; FSPS in 1986. The FSRDS summarizes the liability associated with these plans is a single-benefit retirement plan. Retirees receive a monthly (dollars in millions). annuity from FSRDS for the rest of their lives. FSPS provides benefits from three sources: a basic benefit (annuity) from For the Year Ended September 30, 2013 2012 FSPS, Social Security, and the Thrift Savings Plan. Foreign Service Officer Foreign Service Retirement and $ 20,067 $ 19,434 The Department’s financial statements present the Pension Disability Fund Actuarial Liability of the Foreign Service Retirement and Foreign Service Nationals Disability Program (the “Plan”) as the actuarial present value Defined Contributions Fund 135 123 of projected plan benefits, as required by SFFAS No. 33, Defined Benefit Plans 79 106 Pensions, Other Retirement Benefits, and other Post Employment Lump Sum Retirement and Voluntary Benefits: Reporting the Gains and Losses from Changes in Severance 285 230 Assumptions and Selecting Discount Rates and Valuation Total FSN 499 459 Dates. The Pension Actuarial Liability represents the future Total After-Employment Benefit Liability $ 20,566 $ 19,893 periodic payments provided for current employee and retired Plan participants, less the future employee and employing Details for these plans are presented as follows. Federal agency contributions, stated in current dollars.
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Future periodic payments include benefits expected to For the Year Ended September 30, 2013 2012 be paid to (1) retired or terminated employees or their Pension Actuarial Liability, Beginning of Year $ 19,434 $ 18,219 beneficiaries; (2) beneficiaries of employees who have died; Pension Expense: and (3) present employees or their beneficiaries, including Normal Cost 528 498 refunds of employee contributions as specified by Plan Interest on Pension Liability 857 858 provisions. Total projected service is used to determine Actuarial (Gains) or Losses: eligibility for retirement benefits. The value of voluntary, From Experience (188) (53) involuntary, and deferred retirement benefits is based on From Assumption Changes projected service and assumed salary increases. The value of Interest Rate 500 742 benefits for disabled employees or survivors of employees Other Assumptions (168) 46 is determined by multiplying the benefit the employee or Prior Year Service Costs — — Other (2) (2) survivor would receive on the date of disability or death, Total Pension Expense 1,527 2,089 by a ratio of service at the valuation date to projected Less Payments to Beneficiaries 894 874 service at the time of disability or death. Pension Actuarial Liability, End of Year 20,067 19,434 The Pension Actuarial Liability is calculated by applying Less: Net Assets Available for Benefits 17,475 17,011 actuarial assumptions to adjust the projected plan benefits Actuarial Pension Liability - Unfunded $ 2,592 $ 2,423 to reflect the discounted time value of money and the Actuarial Assumptions: probability of payment (by means of decrements such Rate of Return on Investments 4.25% 4.45% as death, disability, withdrawal or retirement) between Rate of Inflation 2.43% 2.46% the valuation date and the expected date of payment. Salary Increase 2.68% 2.71% The Plan uses the aggregate entry age normal actuarial cost method, whereby the present value of projected benefits Net Assets Available for Benefits atSeptember 30, 2013 and for each employee is allocated on a level basis (such as a 2012, consist of the following (dollars in millions). constant percentage of salary) over the employee’s service between entry age and assumed exit age. The portion of At September 30, 2013 2012 the present value allocated to each year is referred to as Fund Balance with Treasury $ — $ — the normal cost. Accounts and Interest Receivable 185 190 Investments in U.S. Government Securities 17,364 16,893 The table below presents the normal cost percentages for Total Assets 17,549 17,083 FY 2013 and FY 2012. Less: Liabilities Other Than Actuarial 74 72 Net Assets Available for Benefits $ 17,475 $ 17,011 Normal Cost: FY 2013 FY 2012 FSRDS 38.85% 37.32% FSPS 32.52% 31.15% FOREIGN SERVICE NATIONALS’ AFTER- EMPLOYMENT BENEFIT LIABILITIES
Actuarial assumptions are based on the presumption that The Department of State operates overseas in over 180 the Plan will continue. If the Plan terminates, different countries and employs a significant number of local nationals, actuarial assumptions and other factors might be applicable currently over 46,000, known as Foreign Service Nationals for determining the actuarial present value of accumulated (FSNs). plan benefits. The following table presents the calculation of the combined FSRDS and FSPS Pension Actuarial Liability FSNs do not qualify for any Federal civilian benefits (and and the assumptions used in computing it for the year ended therefore cannot participate) in any of the Federal civilian September 30, 2013 and 2012 (dollars in millions). pension systems (e.g., Civil Service Retirement System
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(CSRS), Foreign Service Retirement and Disability System Payroll contributions are sent to the third party administrator, (FSRDS), Thrift Savings Plan (TSP), etc.). By statute, the while separation and retirement benefits are processed by Department is required to establish compensation plans the Department upon receipt of funds from the third party. for FSNs in its employ in foreign countries. The plans are As of September 30, 2013, approximately 10,000 FSNs in based upon prevailing wage and compensation practices in 29 countries participate in such plans. the locality of employment, unless the Department makes a public interest determination to do otherwise. In general, the The Department records expense for contributions to the FSN Department follows host country (i.e., local) practices and DCF when the employee renders service to the Department, conventions in compensating FSNs. The end result of this coinciding with the cash contributions to the FSN DCF. is that compensation for FSNs is often not in accord with Total contributions by the Department in FY 2013 and what would otherwise be offered or required by statute and FY 2012 were $21.5 million and $26.9 million, respectively. regulations for Federal civilian employees. Total liability reported for the FSN DCF is $135 million and $123 million as of September 30, 2013 and 2012, In each country, FSN after-employment benefits are included respectively. in the Post’s Local Compensation Plan. Depending on the local practice, the Department offers defined benefit plans, Local Defined Contribution Plans defined contribution plans, and retirement and voluntary severance lump sum payment plans. These plans are typically In 39 countries, the Department has implemented various in addition to or in lieu of participating in the host country’s local arrangements, primarily with third party providers, local social security system (LSSS). These benefits form an for defined contribution plans for the benefit of FSNs. important part of the Department’s total compensation and Total contributions to these plans by the Department in benefits program that is designed to attract and retain highly FY 2013 and FY 2012 were $20.8 million and $18.3 million, skilled and talented FSN employees. respectively.
FSN Defined Contributions Fund (FSN DCF) Defined Benefit Plans
The Department’s FSN Defined Contributions Fund provides In 12 countries, involving over 3,400 FSNs, the Department retirement benefits for FSN employees in countries where has implemented various arrangements for defined benefit the Department has made a public interest determination to pension plans for the benefit of FSNs. Some of these plans discontinue participation in the Local Social Security System supplement the host country’s equivalent to U.S. social (LSSS). Title 22, Foreign Relations and Intercourse, Section security, others do not. While none of these supplemental 3968, Local Compensation Plans, provides the authority to plans is mandated by the host country, some are substitutes the Department to establish such benefits and identifies as for optional tiers of a host country’s social security system. part of a total compensation plan for these employees. The Such arrangements include (but not limited to) conventional Department pays to the Fund 12 percent of each participant’s defined benefit plans with assets held in the name of trustees salary. Participants are not allowed to make contributions of the plan who engage plan administrators, investment to the Fund. The amount of after-employment benefit advisors and actuaries, and plans offered by insurance received by the employee is determined by the amount of companies at predetermined rates or with annual adjustments the contributions made by the Department together with to premiums. The Department deposits funds under various investment returns from the contributions. The Department’s fiduciary-type arrangements, purchases annuities under obligation is determined by the amounts to be contributed group insurance contracts or provides reserves to these plans. for the period, and no actuarial assumptions are required Benefits under the defined benefit plans are typically based to measure the obligation or the expense. The FSN DCF is either on years of service and/or the employee’s compensation administered by a third party who invests contributions and (generally during a fixed number of years immediately before funds in U.S. Treasury securities on behalf of the Department. retirement). The range of assumptions that are used for the
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defined benefit plans reflect the different economic and The tables below show the changes in the projected benefit regulatory environments within the various countries. obligation and plan assets during FY 2013 and FY 2012 for the Germany and UK plans (dollars in millions). As discussed in Note 1, the Department accounts for these plans under guidance contained in International Accounting Change in Benefit Obligations: 2013 2012 Standard (IAS) No. 19, Employee Benefits. In accordance with Benefit obligation beginning of year $ 311 $ 288 IAS No. 19, the Department reported the net defined benefit Service Cost 3 2 liability of $79 million and $106 million as of September 30, Interest Cost 12 8 2013 and 2012, respectively, as an After-Employment Actuarial (gain) loss on Liability in the Consolidated Balance Sheet. As detailed assumption change — 5 below, the net defined benefit liability is comprised of the Other actuarial (gain) loss — (2) present value of the defined benefit obligation less the fair Value of New Benefit — 12 Other 1 (2) value of plan assets. The Department recognizes the change Benefit obligation end of year $ 327 $ 311 in the net defined benefit liability for its FSN defined benefit plans on the Consolidated Statement of Net Cost under the Executive Direction and Other Costs Not Assigned. The Change in Plan Assets: 2013 2012 change was a decrease of $27 million and $34.9 million in Fair value of plan assets beginning of year $ 194 $ 147 FY 2013 and FY 2012, respectively. Return on plan assets 19 3 Contributions less Benefits Paid 44 43 The material FSN defined benefit plans include plans in Other 3 1 Germany and the United Kingdom (UK) which represent Fair value of plan assets end of year 260 194 80 percent of total assets, 81 percent of total projected Net Defined Benefit Liability $ 67 $ 117 benefit obligations, and 84 percent of net defined benefit liability at September 30, 2013. The Germany Plan’s most The table below shows the allocation of plan assets by recent evaluation report, dated November 11, 2013, is as category during FY 2013 and 2012 for the German and of August 31, 2013. The UK Plan’s most recent evaluation, UK plans. dated October 8, 2013, is as of April 6, 2013. The cost 2013 2012 method used for the valuation of the liabilities associated Insurance Policies 40% 31% with these plans is the Projected Unit Credit (PUC) actuarial Equity Securities 26% 31% cost method. For the Germany Plan, the change in the net Money Market and Cash 11% 15% defined benefit liability was a decrease of $39.5 million in Debt Securities 22% 14% FY 2013 and $3.7 million in FY 2012, while for the UK Mixed (Debt & Equity Securities) — 8% Plan, the change was a decrease of $11 million in FY 2013 Property 1% 1% and $21.9 million in FY 2012. For FY 2013, the decreases in Total 100% 100% the net defined benefit liability were primarily due a one-time employer deficit contribution of $39.7 million for the Germany Plan. The decrease in FY 2012 was due to a one- The principal actuarial assumptions used for 2013 and 2012 time employer deficit funding contribution of $54 million for for the Germany and UK plans are presented below: the UK Plan. Adjustments from the date of the evaluation to September 30, 2013 were determined not to be necessary. Actuarial Assumptions: 2013 2012 Discount Rate 4.00 – 5.90% 4.00 – 5.87% Salary Increase Rate 2.25 – 4.70% 2.25 – 5.40% Pension Increase Rate 2.00 – 3.40% 2.00 – 3.47%
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Retirement and Voluntary Severance Based upon the projection, the total liability reported for the Lump Sum Payments Retirement and Voluntary Severance Lump Sum Payment is $285 million and $230 million as of September 30, 2013 and In 72 countries, FSN employees are provided a lump-sum 2012, respectively, as shown below (dollars in millions): separation payment when they resign, retire, or otherwise separate through no fault of their own. The amount of the At September 30, 2013 2012 payment is generally based on length of service, rate of pay Retirement $ 89 $ 73 at the time of separation, and the type of separation. As of Voluntary Severance 196 157 September 30, 2013, approximately 23,000 FSN’s participate Total $ 285 $ 230 in such plans.
The cost method used for the valuation of the liabilities associated with these plans is the Projected Unit Credit 11 International Organization Liabilities (PUC) actuarial cost method. The participant’s benefit is first determined using both their projected service and The Department’s Bureau of International Organizations salary at the retirement date. The projected benefit is then (IO) is responsible for the administration, development, multiplied by the ratio of current service to projected service and implementation of the United States’ policies in the at retirement in order to determine an allocated benefit. The United Nations (UN), international organizations, and UN Projected Benefit Obligation (PBO) for the entire plan is peacekeeping operations. The United States contributes either calculated as the sum of the individual PBO amounts for to voluntary funds or an assessed share of the budgets and each active member. Further, this calculation, requires certain expenses of these organizations and activities. These missions actuarial assumptions be made, such as voluntary withdraws, are supported through Congressional appropriation to the assumed retirement age, death and disability, as well as Department’s Contributions to International Organizations, economic assumptions. For economic assumptions, available Contributions for International Peacekeeping Activities, and market data was scarce for many of the countries where International Organizations and Programs Accounts. eligible posts are located. Due to the lack of creditable global market data, an approach consistent with that used for the A liability is established for assessments received and unpaid September 30, 2013 FSRDF valuations under SFFAS No. 33 and for pledges made and accepted by an international was adopted. Using this approach, the economic assumptions organization. Congress in the past has mandated withholding used for the Retirement and Voluntary Severance Lump Sum of dues payments because of policy restrictions or caps on the Payment liability as of September 30, 2013 and September percentage of the organization’s operating costs financed by 30, 2012 are: the United States. Without authorization from Congress, the 2013 2012 Department cannot pay certain arrears in dues. The amounts assessed that will likely not be authorized to be paid do not Discount Rate 3.66% 4.03% appear as liabilities on the Balance Sheet of the Department. Rate of inflation 2.43% 2.46% Salary Increase 3.31% 2.71% Amounts presented in this note represent amounts that are paid through the Contributions to International Organizations, Contributions for International Peacekeeping Activities, and International Organizations and Programs Accounts and administered by IO. Payables to international organizations by the Department that are funded through other appropriations are included in Accounts Payable to the extent such payables exist at September 30, 2013 and 2012.
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Further information about the Department’s mission to the inception. The related liability is amortized over the term UN is at www.usunnewyork.usmission.gov. Details of the IO of the lease, which can result in a different value in the asset Liabilities follow (dollars in millions): versus the liability.
As of September 30, 2013 2012 The following is a summary of Net Assets under Capital Leases and Future Minimum Lease payments as of Regular Membership Assessments Payable $ 795 $ 744 to UN September 30, 2013 and 2012 (dollars in millions). Lease liabilities are not covered by budgetary resources. Dues Payable to UN Peacekeeping Missions 631 353 International Organization Liabilities 1,197 1,043 2013 2012 2,623 2,140 Net Assets Under Capital Leases: Less Amounts not Authorized to be Paid 714 715 Buildings $ 108 $ 79 International Organization Liabilities $ 1,909 $ 1,425 Accumulated Depreciation (39) (29) Net Assets under Capital Leases $ 69 $ 50 Funded Amounts $ 648 $ 325 Unfunded Amounts 1,261 1,100 Total International Organization Liabilities $ 1,909 $ 1,425 Future Minimum Lease Payments: 2013
Fiscal Year Lease Payments
12 Leases 2014 $ 11 2015 11 The Department is committed to over 9,300 leases, which 2016 13 cover office and functional properties, and residential units 2017 11 at diplomatic missions overseas. The majority of these leases 2018 10 are short-term operating leases. In most cases, management 2019 and thereafter 160 expects that the leases will be renewed or replaced by other Total Minimum Lease Payments 216 leases. Personnel from other U.S. Government agencies Less: Amount Representing Interest (127) occupy some of the leased facilities (both residential and Liabilities under Capital Leases $ 89 non-residential). These agencies reimburse the Department for the use of the properties. Reimbursements are received 2012 for approximately $89.7 million of the lease costs. Fiscal Year Lease Payments
CAPITAL LEASES 2013 $ 8 2014 8 The Department has various leases for overseas real property 2015 8 that meet the criteria for a capital lease in accordance with 2016 8 SFFAS No. 6, Accounting for Property, Plant, and Equipment. 2017 8 Assets that meet the definition of a capital lease and their 2018 and thereafter 156 related lease liability are initially recorded at the present value Total Minimum Lease Payments 196 of the future minimum lease payments or fair market value, Less: Amount Representing Interest (126) whichever is lower. In general, capital leases are depreciated Liabilities under Capital Leases $ 70 over the estimated useful life or lease term depending on which capitalization criteria the capital leases meet at
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OPERATING LEASES against it. We periodically review these matters pending against us. As a result of these reviews, we classify and adjust our The Department leases real property in overseas locations contingent liability when we think it is probable that there will under operating leases. These leases expire in various years. be an unfavorable outcome and when a reasonable estimate of Minimum future rental payments under operating leases have the amount can be made. remaining terms in excess of 1 year as of September 30, 2013 and 2012 for each of the next 5 years and in aggregate are as Additionally, as part of our continuing evaluation of estimates follows (dollars in millions): required in the preparation of our financial statements, we evaluated the materiality of cases determined to have a Operating Lease Year Ended September 30, 2013 Amounts reasonably possible chance of an adverse outcome. These 2014 $ 413 cases involve contract disputes, claims related to embassy 2015 301 construction, Equal Employment Opportunity Commission 2016 201 claims, and international claims made against the United 2017 115 States being litigated by the Department. As a result of these 2018 77 reviews, the Department believes these claims could result in 2019 and thereafter 232 potential estimable losses of $1 to $37 million if the outcomes Total Minimum Future Lease Payments $ 1,339 were adverse to the Department; these amounts are considered by management to be immaterial to our financial statements taken as a whole. Operating Lease Year Ended September 30, 2012 Amounts Certain legal matters to which the Department is a party are 2013 $ 487 administered and, in some instances, litigated and paid by 2014 372 other U.S. Government agencies. Generally, amounts to be 2015 268 paid under any decision, settlement, or award pertaining to 2016 146 these legal matters are funded from the Judgment Fund. 2017 93 2018 and thereafter 225 None of the amounts paid under the Judgment Fund on Total Minimum Future Lease Payments $ 1,591 behalf of the Department in 2013 and 2012 had a material effect on the financial position or results of operations of the Department.
13 Contingencies and Commitments As a part of our continuing evaluation of estimates required for the preparation of our financial statements, we recognize CONTINGENCIES settlements of claims and lawsuits and revised other estimates in our contingent liabilities. Management and the Legal The Department is a party in various material legal matters Adviser believe we have made adequate provision for (litigation, claims, assessments, including pending or the amounts that may become due under the suits, claims, threatened litigation, unasserted claims, and claims that may and proceedings we have discussed here. derive from treaties or international agreements) brought
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COMMITMENTS The Rewards for Justice Program offers rewards for information leading to the arrest or conviction in any country In addition to the future lease commitments discussed in Note of persons responsible for acts of international terrorism 12, Leases, the Department is committed under obligations against U.S. persons or property, or to the location of key for goods and services which have been ordered but not yet terrorist leaders. See further details at www.rewardsforjustice. received at fiscal year end. These are termed undelivered net. The Narcotics Rewards Program has the authority under orders – see Note 16, Statement of Budgetary Resources. 22 U.S.C. 2708 to offer rewards for information leading to the arrest or conviction in any country of persons committing Rewards Programs: The Department has operated three major foreign violations of U.S. narcotics laws or the killing rewards programs for information that have been critical or kidnapping of U.S. narcotics law enforcement officers or to combating international terrorism, narcotics trafficking, their family members. The War Crimes Rewards Program and war crimes for over 20 years. In FY 2013, the rewards offers rewards for information leading to the arrest, transfer, or program expanded to include the Transnational Organized conviction of persons indicted by a judge of the International Crime Rewards Program. This fourth program offers rewards Criminal Tribunal for the former Yugoslavia, the International targeting significant transnational organized crime figures not Criminal Tribunal for Rwanda, or the Special Court of Sierra included under the existing reward authority. Leone for serious violations of international humanitarian law. The Transnational Organized Crime Rewards Program offers rewards for information leading to the arrest or conviction of significant members of transnational criminal organizations involved in activities that threaten national security, such as human trafficking, and trafficking in arms or other illicit goods.
Pending reward offers under the four programs total $778 million. Under the programs, we have paid out $186 million since FY 2003. Reward payments are funded from Diplomatic and Consular Programs prior year expired, unobligated balances using available transfer authorities as necessary. In the opinion of management and legal counsel, no further contingent liability is required because probable payments do not materially affect the financial position or operations of the Department.
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14 Funds from Dedicated Collections remains unchanged. The new standard required that the Funds from Dedicated Collections are financed by specifically 2012 amounts in the Consolidated Balance Sheet be restated identified revenues, often supplemented by other financing for comparative purposes. sources, which remain available over time. These specifically identified revenues and other financing sources are required The Department administers nine funds from dedicated by statute to be used for designated activities or purposes, collections as listed below. and must be accounted for separately from the Government’s Treasury general revenues. There are no intra-departmental transactions Fund between the various funds from dedicated collections. Symbol Description Statute 19X5515 H-1B and L Fraud Prevention and 118 Stat. 3357 Restatement of 2012 Consolidated Balance Sheet: As Detection discussed in Note 1 ‘Change in Accounting Principles’, 19X8166 American Studies Endowment Fund 108 Stat. 425 changes to the classification of funds previously reported 19X8167 Trust Funds 22 USC 1479 as “Earmarked” were required as part of the adoption of 19X8271 Israeli Arab Scholarship Programs 105 Stat. 696, 697 SFFAS No. 43, Funds from Dedicated Collections: Amending 19X8272 Eastern Europe Student Exchange 105 Stat. 699 Statement of Federal Financial Accounting Standards 27, Endowment Fund Identifying and Reporting Earmarked Funds. As a result, 19X8813 Center for Middle Eastern-Western 118 Stat. 84 Dialogue Trust Fund in 2013, five of the Department’s funds with assets of 19X8821 Unconditional Gift Fund 22 USC 809, 1046 $18 billion that were previously reported as earmarked, are 19X8822 Conditional Gift Fund 22 USC 809, 1046 not considered to be funds from dedicated collections. As a 95X8276 Eisenhower Exchange Fellowship Public Law No. result, the Consolidated Balance Sheet reflects $2.5 billion Program Trust Fund 101-454 previously reported as Cumulative Results of Operations – Earmarked Funds to now be reported in Cumulative The table below displays the dedicated collection amounts Results of Operations – Other Funds. Total Net Position as of September 30, 2013 and 2012 (dollars in millions).
2013 2012 Balance Sheet as of September 30 Assets: Fund Balances with Treasury $ 145 $ 149 Investments 44 35 Other Assets 97 98 Total Assets $ 286 $ 282
Net Position: Cumulative Results of Operations $ 286 $ 282 Total Liabilities and Net Position $ 286 $ 282
Statement of Net Cost for the Year Ended September 30 Gross Program Costs $ 59 $ 51 Less: Earned Revenues — — Net Program Costs 59 51 Net Cost of Operations $ 59 $ 51
Statement of Changes in Net Position for the Year Ended September 30 Net Position Beginning of Period $ 282 $ 269 Budgetary Financing Sources 63 64 Net Cost of Operations (59) (51) Change in Net Position 4 13 Net Position End of Period $ 286 $ 282
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15 Statement of Net Cost
The Consolidated Statement of Net Cost reports the The Consolidating Schedule of Net Cost categorizes costs Department’s gross cost and net cost for its strategic and revenues by strategic goal and responsibility segment. goals. The net cost of operations is the gross (i.e., total) A responsibility segment is the component that executes a cost incurred by the Department, less any exchange mission or major line of activity, and whose managers report (i.e., earned) revenue. directly to top management. For the Department, a bureau
CONSOLIDATING SCHEDULE OF NET COST For the Year Ended September 30, 2013 (dollars in millions) Under Secretary for Arms Economic Civilian Security, Public Management- Intra- Control, Int’l Growth, Energy Democracy and Political Diplomacy and Consular Departmental STRATEGIC GOAL Security and Environment Human Rights Affairs Public Affairs Affairs Eliminations Total Countering Security Threats and Advancing Global Security Total Cost $ 509 $ 31 $ 955 $ 5,068 $ 34 $ — $ (655) $ 5,942 Earned Revenue (71) (7) (53) (876) (2) — 632 (377) Net Program Costs 438 24 902 4,192 32 — (23) 5,565 Managing Transitions in the Frontline States Total Cost 157 — 530 1,469 — — (26) 2,130 Earned Revenue (3) — (8) (90) — — 26 (75) Net Program Costs 154 — 522 1,379 — — — 2,055 Expanding and Sustaining Stable States through Democratic Principles Total Cost 502 118 1,351 9,677 12 — (322) 11,338 Earned Revenue (62) (11) (98) (1,002) — — 310 (863) Net Program Costs 440 107 1,253 8,675 12 — (12) 10,475 Providing Humanitarian Assistance and Supporting Disaster Mitigation Total Cost — — 2,222 93 10 — (41) 2,284 Earned Revenue — — (36) (4) — — 39 (1) Net Program Costs — — 2,186 89 10 — (2) 2,283 Supporting American Prosperity through Economic Diplomacy Total Cost — — — 131 — — (10) 121 Earned Revenue — — — (31) — — 10 (21) Net Program Costs — — — 100 — — — 100 Advancing U.S. Interests through Public Diplomacy and Programs Total Cost 26 8 43 168 820 — (171) 894 Earned Revenue (18) (2) (18) (200) (104) — 165 (177) Net Program Costs 8 6 25 (32) 716 — (6) 717 Achieving Consular Excellence and a Secure U.S. Presence Internationally Total Cost — — — 1,538 646 4,432 (1,205) 5,411 Earned Revenue — — — (419) (146) (4,307) 1,163 (3,709) Net Program Costs — — — 1,119 500 125 (42) 1,702 Executive Direction and Other Costs Not Assigned Total Cost 5 8 126 6,059 742 — (3,325) 3,615 Earned Revenue (4) (5) (90) (4,445) (534) — 3,273 (1,805) Net Program Costs Before Assumption Changes 1 3 36 1,614 208 — (52) 1,810 Actuarial Loss on Pension Assumption Changes — — 6 316 38 — — 360 Net Program Costs 1 3 42 1,930 246 — (52) 2,170 Total Cost 1,199 165 5,233 24,519 2,302 4,432 (5,755) 32,095 Total Revenue (158) (25) (303) (7,067) (786) (4,307) 5,618 (7,028) Total Net Cost $ 1,041 $ 140 $ 4,930 $ 17,452 $ 1,516 $ 125 $ (137) $ 25,067
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(e.g., Bureau of African Affairs) is considered a responsibility were updated in FY 2013 and are defined in Management‘s segment. For presentation purposes, bureaus have been Discussion and Analysis section of this report. summarized and reported at the Under Secretary level Executive Direction and Other Costs Not Assigned relate to (e.g., Under Secretary for Political Affairs). high-level executive direction (e.g., Office of the Secretary, Certain FY 2012 amounts in the Consolidated Statement of Office of the Legal Adviser), international commissions, Net Cost have been reclassified to conform to the FY 2013 general management, and certain administrative support presentation. costs that cannot be directly traced or reasonably allocated to a particular program. For the years ended September 30, The presentation of program results by strategic goals is 2013 and 2012, these consist of costs and earned revenue based on the Department’s current Strategic Plan, established summarized below (dollars in millions): pursuant to the Government Performance and Results Act of 1993. The Department’s strategic goals and strategic priorities 2013 2012 Total Intra- Total Intra- Prior to Departmental Prior to Departmental Program Eliminations Eliminations Total Eliminations Eliminations Total Costs: Executive Direction & Other $ 2,727 $ 868 $ 1,859 $ 3,533 $ 1,148 $ 2,385 FSRDF 1,527 608 919 1,301 565 736 ICASS 2,546 1,848 698 2,244 1,800 444 International Commissions 140 1 139 140 1 139 Total Costs 6,940 3,325 3,615 7,218 3,514 3,704 Less Earned Revenue: Executive Direction & Other 1,060 830 230 1,080 1,046 34 FSRDF 1,359 608 751 1,355 565 790 ICASS 2,644 1,834 810 2,449 1,800 649 International Commissions 15 1 14 14 1 13 Total Earned Revenue 5,078 3,273 1,805 4,898 3,412 1,486 Actuarial Loss on Pension Assumption Changes 360 — 360 770 — 770 Total Net Cost for Executive Direction and Other Costs Not Assigned $ 2,222 $ 52 $ 2,170 $ 3,090 $ 102 $ 2,988
PROGRAM COSTS Secretary for Management by the following organizations These costs include the full cost of resources consumed by a (dollars in millions): program, both direct and indirect, to carry out its activities. Bureau (or equivalent) 2013 2012 Direct costs can be specifically identified with a program. Indirect costs include resources that are commonly used Bureau of Diplomatic Security $ 1,890 $ 2,816 to support two or more programs and are not specifically Office of Overseas Buildings Operations 1,471 1,627 Bureau of Administration 1,491 1,172 identified with any program. Indirect costs are assigned to Bureau of the Comptroller and Global programs through allocations. Full costs also include the Financial Services 990 988 costs of goods or services received from other Federal entities Bureau of Personnel 706 681 (referred to as inter-entity costs) regardless of whether the Bureau of Information Resource Department reimburses that entity. Management 508 580 Foreign Service Institute 223 221 Indirect Costs: Indirect costs consist primarily of Medical Services and Other 167 103 Achieving Consular Excellence charges for central support Total Central Support Indirect Costs $ 7,446 $ 8,188 functions performed in 2013 and 2012 under the Under
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The totals for these support costs have been reduced as a result of the reclassification to conform to the current strategic goal presentation. These support costs were distributed to programs on the basis of a program’s total base salaries for its full-time employees, as a percentage of total base salaries for all full-time employees, except for the Office of Overseas Buildings Operations (OBO). Since OBO supports overseas operations, its costs were allocated based on the percentage of budgeted cost by program for the regional bureaus. The distribution of support costs to programs in 2013 and 2012 was as follows(dollars in millions):
Program Receiving Allocation 2013 2012 Countering Security Threats and Advancing Global Security $ 566 $ 610 Managing Transitions in the Frontline States 297 302 Expanding and Sustaining Stable States through Democratic Principles 2,060 2,092 Providing Humanitarian Assistance and Supporting Disaster Mitigation 83 41 Supporting American Prosperity through Economic Diplomacy 23 24 Advancing U.S. Interests through Public Diplomacy and Programs 174 176 Achieving Consular Excellence and a Secure U.S. Presence Internationally 2,416 2,874 Executive Direction and Other Costs Not Assigned 1,827 2,069 Total $ 7,446 $ 8,188
Since the costs incurred by the Under Secretary for Manage- Inter-Entity Costs and Imputed Financing: To measure the ment and the Secretariat are primarily support costs, these full cost of activities, SFFAS No. 4, Managerial Cost Account- costs were distributed to the other Under Secretaries to show ing, requires that total costs of programs include costs that are the full costs under the responsibility segments that have paid by other U.S. Government entities, if material. As pro- direct control over the Department’s programs. One exception vided by SFFAS No. 4, OMB issued a Memorandum in April within the Under Secretary for Management is the Bureau 1998, entitled “Technical Guidance on the Implementation of of Consular Affairs, which is responsible for the Achieving Managerial Cost Accounting Standards for the Government.” Consular Excellence program. As a result, these costs were not In that Memorandum, OMB established that reporting entities allocated and continue to be reported as the Under Secretary should recognize inter-entity costs for (1) employees’ pension for Management. benefits; (2) health insurance, life insurance, and other benefits for retired employees; (3) other post-retirement benefits for The Under Secretary for Management/Secretariat costs retired, terminated and inactive employees, including severance (except for the Bureau of Consular Affairs) were allocated to payments, training and counseling, continued health care, and the other Department responsibility segments based on the unemployment and workers’ compensation under the Federal percentage of total costs by organization for each program. Employees’ Compensation Act; and (4) payments made in The allocation of these costs to the other Under Secretaries litigation proceedings. and to the Bureau of Consular Affairs in 2013 and 2012 was as follows (dollars in millions): The Department recognizes an imputed financing source on Under Secretary 2013 2012 the Statement of Changes in Net Position for the value of inter-entity costs paid by other U.S. Government entities. This Political Affairs $ 14,573 $ 14,837 consists of all inter-entity amounts as reported below, except Management (Consular Affairs) 2,193 2,015 for the Federal Workers’ Compensation Benefits (FWCB). For Public Diplomacy and Public Affairs 1,478 1,667 FWCB, the Department recognizes its share of the change in Arms Control, International Security Affairs 549 1,968 Civilian Security, Democracy, and Human Rights 1,258 712 the actuarial liability for FWCB as determined by the Depart- Economic Growth, Energy and Environment 122 112 ment of Labor (DOL). The Department reimburses DOL for Total $ 20,173 $ 21,311 FWCB paid to current and former Department employees.
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The following inter-entity costs and imputed financing sources INTRAGOVERNMENTAL COSTS AND were recognized in the Statement of Net Cost and Statement EARNED REVENUES of Changes in Net Position, for the years ended September 30, 2013 and 2012 (dollars in millions): Intragovernmental costs and earned revenues are transactions between the Department and another reporting entity within Inter-Entity Cost 2013 2012 the Federal Government. Costs and earned revenues with the Other Post-Employment Benefits: public are transactions between the Department and a non- Civil Service Retirement Program $ 39 $ 33 Federal entity. If a Federal entity purchases goods or services Federal Employees Health Benefits Program 116 126 from another Federal entity, the related costs are classified as Federal Employees Group Life Insurance Program 1 1 intragovernmental. If the Federal entity sells them to the public, Litigation funded by Treasury Judgment Fund — — the earned revenues are classified as with the public. For the Subtotal – Imputed Financing Source 156 160 years ended September 30, 2013 and 2012, intragovernmental Future Workers’ Compensation Benefits 19 16 costs and earned revenues were as follows (dollars in millions): Total Inter-Entity Costs $ 175 $ 176 2013 2012 Gross Cost Intra-departmental Eliminations: Intra-departmental Intragovernmental $ 2,753 $ 3,190 eliminations of cost and revenue were recorded against With the Public 29,342 30,010 the program that provided the service. Therefore, the full Total Gross Cost 32,095 33,200 program cost was reported by leaving the reporting of cost Earned Revenue with the program that received the service. Intragovernmental (2,792) (3,272) With the Public (4,236) (3,472) Total Earned Revenue (7,028) (6,744) Total Net Cost of Operations $ 25,067 $ 26,456
EARNED REVENUES
Earned revenues occur when the Department provides goods or services to the public or another Federal entity. Earned revenues are reported regardless of whether the Department is permitted to retain all or part of the revenue. Specifically, the Department collects, but does not retain all passport, visa, and other consular fees. Earned revenues for the years ended September 30, 2013 and 2012, consist of the following (dollars in millions): 2013 2012 Total Intra- Total Intra- Prior to Departmental Prior to Departmental Program Eliminations Eliminations Total Eliminations Eliminations Total Consular Fees: Passport, Visa and Other Consular Fees $ 676 $ — $ 676 $ 705 $ — $ 705 Machine Readable Visa 1,672 — 1,672 1,473 — 1,473 Expedited Passport 173 — 173 164 — 164 Passport, Visa and Other Surcharges 787 — 787 768 — 768 Fingerprint Processing, Diversity Lottery, and Affadavit of Support 20 — 20 16 — 16 Subtotal – Consular Fees 3,328 — 3,328 3,126 — 3,126
FSRDF 1,359 608 751 1,355 565 790 ICASS 2,644 1,834 810 2,449 1,800 649 Other Reimbursable Agreements 3,352 1,896 1,456 4,631 2,743 1,888 Working Capital Fund 1,284 1,174 110 1,055 959 96 Other 679 106 573 270 75 195 Total $ 12,646 $ 5,618 $ 7,028 $ 12,886 $ 6,142 $ 6,744
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PRICING POLICIES liability; (3) the FSRDS disbursements attributable to military service; and (4) the FSPS supplemental liability Generally, a Federal agency may not earn revenue from payment. The U.S. Government contributions for 2013 outside sources unless it obtains specific statutory authority. and 2012 were $333 million and $297 million, respectively. Accordingly, the pricing policy for any earned revenue depends FSRDF cash resources are invested in special non-marketable on the revenue’s nature, and the statutory authority under securities issued by the Treasury. Total interest earned on which the Department is allowed to earn and retain (or not these investments for 2013 and 2012 were $675 million retain) the revenue. Earned revenue that the Department is and $715 million, respectively. not authorized to retain is deposited into the Treasury’s General Fund. Consular Fees are established primarily on a cost recovery basis and are determined by periodic cost studies. Certain The FSRDF finances the operations of the Foreign Service fees, such as the machine readable Border Crossing Cards, are Retirement and Disability System (FSRDS) and the Foreign determined statutorily. Reimbursable Agreements with Federal Service Pension System (FSPS). The FSRDF receives revenue agencies are established and billed on a cost-recovery basis. from employee/employer contributions, a U.S. Government ICASS billings are computed on a cost recovery basis; billings contribution, and interest on investments. By law, FSRDS are calculated to cover all operating, overhead, and replacement participants contribute 7.25 percent of their base salary, costs of capital assets, based on budget submissions, budget and each employing agency contributes 7.25 percent; FSPS updates, and other factors. In addition to services covered participants contribute 1.35 percent of their base salary and under ICASS, the Department provides administrative each employing agency contributes 20.22 percent. Employing support to other agencies overseas for which the Department agencies report employee/employer contributions biweekly. does not charge. Areas of support primarily include buildings Total employee/employer contributions for 2013 and 2012 and facilities, diplomatic security (other than the local guard were $350 million and $343 million, respectively. program), overseas employment, communications, diplomatic pouch, receptionist and selected information management The FSRDF also receives a U.S. Government contribution activities. The Department receives direct appropriations to to finance (1) FSRDS benefits not funded by employee/ provide this support. employer contributions; (2) interest on FSRDS unfunded
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16 Statement of Budgetary Resources
The Statement of Budgetary Resources reports information Per OMB Circular A-11, Preparation, Submission and on how budgetary resources were made available and their Execution of the Budget, revised, Category A obligations status as of and for the years ended September 30, 2013 represent resources apportioned for calendar quarters. and 2012. Intra-departmental transactions have not been Category B obligations represent resources apportioned eliminated in the amounts presented. for other time periods; for activities, projects, and objectives or for a combination, thereof. The Budgetary Resources section presents the total budgetary resources available to the Department. For the years ended STATUS OF UNDELIVERED ORDERS September 30, 2013 and 2012, the Department received approximately $60.6 billion and $57.5 billion in budgetary Undelivered Orders (UDO) represents the amount of goods resources, respectively, primarily consisting of the following: and/or services ordered, which have not been actually or constructively received. This amount includes any orders Source of Budgetary Resources which may have been prepaid or advanced but for which (dollars in billions) 2013 2012 delivery or performance has not yet occurred. Budget Authority: Direct or related appropriations $ 30.5 $ 30.7 The amount of budgetary resources obligated for UDO Authority financed from Trust Funds 1.0 1.0 for all activities as of September 30, 2013 and 2012 was Spending authority from providing goods 10.4 10.3 approximately $23.6 billion and $24.6 billion, respectively. and services This includes amounts of $1.1 billion for September 30, Unobligated Balances – Beginning of Year 17.5 13.1 Other 1.2 2.4 2013 and $1 billion for September 30, 2012, pertaining to Total Budgetary Resources $ 60.6 $ 57.5 revolving funds, trust funds, and substantial commercial activities. Apportionment Categories of Obligations Incurred (dollars in millions) PERMANENT INDEFINITE APPROPRIATIONS Total Direct Reimbursable Obligations Obligations Obligations Incurred A permanent indefinite appropriation is open-ended as to both its period of availability (amount of time the agency For the Fiscal Year Ended September 30, 2013 has to spend the funds) and its amount. The Department Obligations Apportioned Under received permanent indefinite appropriations of $174.5 Category A $ 7,295 $ 1,347 $ 8,642 Category B 21,256 8,787 30,043 million and $138.2 million for 2013 and 2012, respectively. Exempt from The permanent indefinite appropriation provides payments Apportionment 6 — 6 to the Foreign Service Retirement and Disability Fund to Total $ 28,557 $ 10,134 $ 38,691 finance the interest on the unfunded pension liability for the year, Foreign Service Pension System, and disbursements Total Direct Reimbursable Obligations attributable to liability from military service. Obligations Obligations Incurred For the Fiscal Year Ended September 30, 2012 Obligations Apportioned Under Category A $ 7,118 $ 3,523 $ 10,641 Category B 23,066 6,345 29,411 Exempt from — — — Apportionment Total $ 30,184 $ 9,868 $ 40,052
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RECONCILIATION OF THE STATEMENT OF this reconciliation is based on the FY 2012 Statement of BUDGETARY RESOURCES TO THE BUDGET OF Budgetary Resources because actual amounts for FY 2012 THE UNITED STATES GOVERNMENT are in the most recently published Budget (i.e., FY 2014). The Budget with actual numbers for September 30, 2013 The reconciliation of the Statement of Budgetary will be published in the FY 2015 Budget and available in Resources and the actual amounts reported in the early February 2014. The Department of State’s Budget Budget of the United States Government (Budget) as of Appendix includes this information and is available on September 30, 2012 is presented in the table below. Since OMB’s website (http://www.whitehouse.gov/omb/budget). these financial statements are published before the Budget,
Distributed For the Fiscal Year Ended September 30, 2012 Budgetary Obligations Offsetting Net (dollars in millions) Resources Incurred Receipts Outlays Statement of Budgetary Resources (SBR) $ 57,533 $ 40,052 $ 394 $ 28,109 Distributed Offsetting Receipts (394) 394 Funds not Reported in the Budget: Expired Funds (488) — — — International Assistance Program (3,032) (1,585) — (1,423) Undelivered Orders Adjustment (277) — — — Other and Rounding errors (57) 85 — 97 Budget of the United States $ 53,679 $ 38,552 $ — $ 27,177
International Assistance Program, included in these financial statements, is reported separately in the Budget of the United States. Other differences represent financial statement adjustments, timing differences, and other immaterial differences between amounts reported in the Department SBR and the Budget of the United States.
17 Custodial Activity
The Department administers certain activities associated with the collection of non-exchange revenues, which are deposited and recorded directly to the General Fund of the Treasury. The Department does not retain the amounts collected. Accordingly, these amounts are not considered or reported as financial or budgetary resources for the Department. At the end of each fiscal year, the accounts are closed and the balances are brought to zero by Treasury. Specifically, the Department collects interest, penalties and handling fees on accounts receivable; fines, civil penalties and forfeitures; and other miscellaneous receipts. In FY 2013 and FY 2012, the Department collected $45 million and $52 million, respectively, in custodial revenues that were transferred to Treasury.
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18 Reconciliation of Net Cost of Operations to Budget
Budgetary accounting used to prepare the Statement of appropriations, net of offsetting collections and receipts. The Budgetary Resources and proprietary accounting used to second section adjusts the resources. Some resources are used prepare the other principal financial statements are for items that will be reflected in future net cost. Some are complementary, but both the types of information about used for assets that are reported on the Balance Sheet, not as assets, liabilities, net cost of operations and the timing of net cost. The final section adds or subtracts from total their recognition are different. The reconciliation of resources those items reported in net cost that do not require budgetary resources obligated during the current period to or generate resources. As an example, the Department the net cost of operations explains the difference between the collects regular passport fees that are reported as revenue on sources and uses of resources as reported in the budgetary the Statement of Net Cost. However, these fees are not reports and in the net cost of operations.The first section of shown as a resource because they are returned to Treasury the reconciliation below presents total resources used in the and cannot be obligated or spent by the Department. period to incur obligations. Generally, those resources are
For the Year Ended September 30, (dollars in millions) 2013 2012 Resources Used to Finance Activities: Budgetary Resources Obligated Obligations Incurred $ 38,691 $ 40,052 Spending Authority from Offsetting Collections and Recoveries (12,111) (11,945) Offsetting Receipts (452) (394) Net Obligations 26,128 27,713 Imputed Financing 156 160 Other Resources 678 648 Total Resources Used to Finance Activities 26,962 28,521 Resources Used to Finance Items not Part of Net Cost: Resources Obligated for Future Costs - goods ordered but not yet provided 989 266 Resources that Finance the Acquisition of Assets (2,468) (2,311) Resources that Fund Expenses Recognized in Prior Periods (670) (1,229) Other (14) 581 Total Resources Used to Finance Items not Part of Net Cost (2,163) (2,693)
Total Resources Used to Finance the Net Cost of Operations 24,799 25,828 Components of the Net Cost of Operations that will not require or generate Resources in the Current Period: Increase in Actuarial Liability 633 1,215 Passport Fees Reported as Revenue Returned to Treasury General Fund (687) (719) Depreciation and Amortization 812 758 Interest Income of Trust Funds (675) (716) Other 185 90 Total Components of the Net Cost of Operations that will not require or generate Resources in the Current Period 268 628
Net Cost of Operations $ 25,067 $ 26,456
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19 Fiduciary Activities
The Resolution of the Iraqi Claims deposit fund 19X6038, scope of the agreements, investment of contributions into Libyan Claims deposit fund 19X6224, and the Saudi Treasury securities, and disbursement of contributions Arabia Claims deposit fund 19X6225 are presented in received in accordance with the agreements. As specified accordance with SFFAS No. 31, Accounting for Fiduciary in the agreements, donors could include governments, Activities, and OMB Circular A-136, Financial Reporting institutions, entities, corporations, associations, and Requirements, revised. These deposit funds were authorized individuals. The Department manages these funds in a by claims settlement agreements between the United fiduciary capacity and does not have ownership rights States and the Governments of Iraq, Libya, and Saudi against its contributions and investments; the assets and Arabia. The agreements authorized the Department to activities summarized in the schedules below do not collect contributions from donors for the purpose of appear in the financial statements. The Department’s providing compensation for certain claims within the fiduciary activities are disclosed in this note.
Schedule of Fiduciary Activity As of September 30, (dollars in millions) 2013 2012 19-X-6038 19-X-6224 19-X-6225 Total 19-X-6038 19-X-6224 19-X-6225 Total Fiduciary Net Assets, Beginning of Year $ 132 $ — $ 1 $ 133 $ 220 $ 10 $ 1 $ 231 Contributions — — 146 146 — — 49 49 Disbursements to and on behalf of beneficiaries (29) — (146) (175) (88) (10) (49) (147) Increases/(Decreases) in Fiduciary Net Assets (29) — — (29) (88) (10) — (98) Fiduciary Net Assets, End of Year $ 103 $ — $ 1 $ 104 $ 132 $ — $ 1 $ 133
Fiduciary Net Assets As of September 30, (dollars in millions) 2013 2012 Fiduciary Assets 19-X-6038 19-X-6224 19-X-6225 Total 19-X-6038 19-X-6224 19-X-6225 Total Cash & Cash Equivalents $ 5 $ — $ 1 $ 6 $ 9 $ — $ 1 $ 10 Investments 98 — — 98 123 — — 123 Total Fiduciary Net Assets $ 103 $ — $ 1 $ 104 $ 132 $ — $ 1 $ 133
2013 Agency Financial Report • United States Department of State | 117 FINANCIAL SECTION | REQUIRED SUPPLEMENTARY INFORMATION Required Supplementary Information
COMBINING SCHEDULE OF BUDGETARY RESOURCES For the Year Ended September 30, 2013 (dollars in millions) Administration of Foreign International International Foreign Affairs Organizations Commissions Assistance Other Total
Budgetary Resources: Unobligated balance brought forward, October 1 $ 8,610 $ 64 $ 91 $ 1,447 $ 7,269 $ 17,481 Adjustment to unobligated balance brought forward, October 1 (1) — — (14) (4) (19) Unobligated balance brought forward, October 1, as adjusted 8,609 64 91 1,433 7,265 17,462 Recoveries of prior year unpaid obligations 1,336 8 9 74 290 1,717 Other changes in unobligated balance (36) (5) (1) (268) (167) (477) Unobligated balance from prior year budget authority, net 9,909 67 99 1,239 7,388 18,702 Appropriations (discretionary and mandatory) 13,555 3,386 113 1,436 12,977 31,467 Borrowing authority (discretionary and mandatory) 1 — — — — 1 Contract authority (discretionary and mandatory) — — — — — — Spending authority from offsetting collections (discretionary and mandatory) 10,280 — 12 63 39 10,394 Total Budgetary Resources $ 33,745 $ 3,453 $ 224 $ 2,738 $ 20,404 $ 60,564
Status of Budgetary Resources: Obligations incurred $ 23,196 $ 3,184 $ 142 $ 1,945 $ 10,224 $ 38,691 Unobligated balance, end of year: Apportioned 9,323 269 75 654 9,688 20,009 Exempt from apportionment 354 — — — — 354 Unapportioned 872 — 7 139 492 1,510 Unobligated balance, end of year 10,549 269 82 793 10,180 21,873 Total Status of Budgetary Resources $ 33,745 $ 3,453 $ 224 $ 2,738 $ 20,404 $ 60,564
Change in Obligated Balance: Unpaid Obligations: Unpaid obligations, brought forward, Oct 1 (gross) $ 12,794 $ 156 $ 71 $ 1,324 $ 13,198 $ 27,543 Adjustments to unpaid obligations, start of year (+ or -) (26) — — 14 160 148 Obligations incurred 23,196 3,184 142 1,945 10,224 38,691 Outlays (gross) (-) (22,010) (3,015) (124) (1,279) (11,573) (38,001) Actual transfers, unpaid obligations (net) (+ or -) — — — — — — Recoveries of prior year unpaid obligations (-) (1,336) (8) (9) (74) (290) (1,717) Unpaid obligations, end of year (gross) $ 12,618 $ 317 $ 80 $ 1,930 $ 11,719 $ 26,664
Uncollected payments: Uncollected customer payments from Federal sources, brought forward, October 1 (-) $ (680) $ — $ (3) $ (1) $ (100) $ (784) Adjustments to uncollected pymts, Fed sources, start of year (+ or -) (Note 28) — — — — — — Change in uncollected customer payments from Federal sources (+ or -) (102) — (4) — 18 (88) Actual transfers, uncollected payments from Federal source (net) (+ or -) — — — — — — Uncollected customer payments from Federal sources, end of year (-) $ (782) $ — $ (7) $ (1) $ (82) $ (872)
Memorandum (non-add) entries Obligated balance, start of year (+ or -) 12,088 156 68 1,337 13,258 26,907 Obligated balance, end of year (+ or -) 11,836 317 74 1,928 11,637 25,792 (continued on next page)
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COMBINING SCHEDULE OF BUDGETARY RESOURCES (continued) Administration of Foreign International International Foreign Affairs Organizations Commissions Assistance Other Total
Budget Authority and Outlays, Net: Budget authority, gross (discretionary and mandatory) $ 23,836 $ 3,386 $ 125 $ 1,499 $ 13,016 $ 41,862 Actual offsetting collections (discretionary and mandatory) (-) (10,212) — (8) (63) (44) (10,327) Change in uncollected customer payments from Federal sources (discretionary and mandatory) (+ or -) (102) — (4) — 18 (88) Anticipated offsetting collections (discretionary and mandatory) (+ or -) — — — — — — Budget authority, net (discretionary and mandatory) 13,522 3,386 113 1,436 12,990 31,447
Outlays, gross (discretionary and mandatory) 22,010 3,015 124 1,279 11,573 38,001 Actual offsetting collections (discretionary and mandatory) (-) (10,212) — (8) (63) (44) (10,327) Outlays, net (discretionary and mandatory) 11,798 3,015 116 1,216 11,529 27,674 Distributed offsetting receipts (-) (452) — — — — (452) Agency outlays, net (discretionary and mandatory) $ 11,346 $ 3,015 $ 116 $ 1,216 $ 11,529 $ 27,222
Deferred Maintenance for the Fiscal Heritage Assets Year Ended September 30, 2013 The condition of the Department’s heritage assets is based The Department occupies more than 3,014 government- on professional conservation standards. The Department owned or long-term leased real properties at more than performs periodic condition surveys to ensure heritage 270 overseas locations and IBWC. It uses a condition assets are documented and preserved for future generations. assessment survey method to evaluate the asset’s condition, Once these objects are conserved, regular follow-up and determine the repair and maintenance requirements inspections and periodic maintenance treatments are for its overseas buildings and IBWC properties. essential for their preservation. The categories of condition are Poor, Good, and Excellent. SFFAS No. 6, Accounting for Property, Plant, and Equipment, requires that deferred maintenance (measured using the CONDITION OF HERITAGE ASSETS condition survey method) and the description of the As of September 30, 2013 requirements or standards for acceptable operating condition Number be disclosed. Fundamentally, the Department considers all of Category of Assets Condition its overseas facilities to be in an “acceptable condition” in that Diplomatic Reception Rooms they serve their required mission. Adopting standard criteria Collection 1,782 Good to Excellent Art Bank Program 2,425 Good to Excellent for a classification of acceptable condition is difficult due to Art in Embassies Program 1,054 Good to Excellent the complex environment in which the Department operates. Cultural Heritage Collection 17,900 Good to Excellent Library Rare & Special Book From a budgetary perspective, funding for maintenance Collection 1,061 Poor to Good and repair has been insufficient in the past. As a result, the Secretary of State’s Register of Department has identified current maintenance and repair Culturally Significant Property 25 Poor to Excellent U.S. Diplomacy Center 2,827 Good to Excellent backlogs of $148 million in 2013 and $143 million in 2012 Blair House 2,616 Good to Excellent for buildings and facilities-related equipment and heritage assets that have not been funded.
2013 Agency Financial Report • United States Department of State | 119 U.S. Secretary of State John Kerry, right, with young alumni of State Department programs looks at the 14th Century Tomb of Muslim rulers during their walk at Lodhi
Gardens, in New Delhi, India, June 24, 2013. ©AP Image SECTION III: Other Information
Schedule of Spending
he Schedule of Spending (SOS) presents an The Office of Management and Budget (OMB) makes overview of how much money is available to spend available a searchable website, www.USAspending.gov, that T and how or on what that money was spent. The provides information on federal awards of contracts and term “spend”, as used in this report, means obligated. grants and is accessible to the public at no cost. When Obligation means a legally binding agreement that will comparing USAspending.gov data to the SOS one must take result in outlays, immediately or in the future. In layman’s into account that the website has a fundamentally different terms, obligations are incurred when you place an order, purpose and, as such, there are differences that include but sign a contract, award a grant, purchase a service, or are not limited to personnel compensation, travel, utilities take other actions that require the Government to make and leases, intra-departmental and interagency spending, payments to the public or from one Government account and various other categories of financial awards. As a result, to another. It does not equate to expenses as reported in the USAspending.gov data will differ from the Schedule of Statement of Net Cost. The data used to prepare this report Spending. is the same underlying data used to prepare the Statement of Budgetary Resources (SBR). The Department’s total resources for the year ended September 30, 2013, were $60.6 billion. During FY 2013, the Department spent $38.7 billion of these resources as summarized below (dollars in millions).
SCHEDULE OF SPENDING For the Year Ended September 30, 2013 (dollars in millions)
Administration of Foreign International International Foreign Affairs Organizations Commissions Assistance Other Total What Money is Available to Spend? Total Resources $ 33,745 $ 3,453 $ 224 $ 2,738 $ 20,404 $ 60,564 Less Amount Available but Not Agreed to be Spent 9,677 269 75 654 9,688 20,363 Less Amount Not Available to be Spent 872 — 7 139 492 1,510 Total Amounts Agreed to be Spent $ 23,196 $ 3,184 $ 142 $ 1,945 $ 10,224 $ 38,691
How was the Money Spent/Issued? Personnel Compensation & Benefits $ 6,922 $ — $ 25 $ 9 $ 274 $ 7,230 Contractual Services & Supplies 11,391 — 47 1,170 1,500 14,108 Acquisition of Assets 1,759 — 29 6 70 1,864 Grants and Fixed Charges 1,704 3,175 32 674 8,076 13,661 Other 1,420 9 9 86 304 1,828 Total Amounts Agreed to be Spent $ 23,196 $ 3,184 $ 142 $ 1,945 $ 10,224 $ 38,691
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Inspector General’s Assessment of Management and Performance Challenges
he Reports Consolidation Act of embassy compounds, leaving them vulnerable 2000 requires that the Department’s for three or more years during construction. T Performance and Accountability In addition, OIG found that some personnel Report include a statement by the Inspector were permanently located in off-compound General that summarizes the most serious facilities that did not meet physical security management and performance challenges standards. facing the Department and briefly assesses the progress in addressing them. The Office The tragic loss of life in Benghazi underscored of Inspector General (OIG) considers the a significant challenge the Department faces most serious management and performance when considering when to open and close Deputy Inspector General, challenges for the Department to be in the Harold W. Geisel diplomatic facilities and whether to maintain following areas: diplomatic facilities in certain locations at all. When assessing risk, the Department must consider 1. Protection of People and Facilities not only the benefit of having a presence, but also the 2. Contract and Procurement Management threat environment, mitigating measures and cost, and the 3. Information Security and Management willingness and ability of the host nation to provide security 4. Financial Management support under terms of the Vienna Convention. Recent OIG 5. Military to Civilian-Led Transitions—Iraq and recommendations highlight this challenge.3 Afghanistan 6. Foreign Assistance Coordination and Oversight The Department established a High Threat Post (HTP) 7. Public Diplomacy directorate in the Bureau of Diplomatic Security. 8. Consular Operations The Department will need to review continually the 9. Leadership designation of HTPs, noting emergent conditions that 10. Rightsizing significantly change the risk of operating there. Identifying high-threat posts is not enough, however. The Department 1 Protection of People and Facilities also needs to accelerate security upgrades at high-threat posts. Several OIG reports over the past decade recommended Protecting Department employees and facilities overseas needed physical security upgrades; the Department has remains a significant management challenge. An OIG audit implemented some but not all of these recommendations. of five high-threat overseas posts found that they were not always in compliance with physical and procedural security 2 Contract and Procurement 1 standards. A separate audit examined whether selected Management embassies in Africa complied with current physical security standards.2 Here too, OIG identified common physical and The Department continues to face challenges with the proper procedural security deficiencies. Some deficiencies occurred management, oversight, and accountability of contracts because embassies did not receive the resources necessary to and procurements, including grants and cooperative and address known deficiencies while awaiting relocation to new interagency agreements.
1 Audit of Department of State Compliance With Physical and Procedural Security Standards at Selected High Threat Level Posts (AUD-SI-13-32, June 2013). 2 Audit of Department of State Compliance with Physical Security Standards at Selected Posts within the Bureau of African Affairs (AUD-HCI-13-40, September 2013). 3 Special Review of the Accountability Review Board Process (ISP-I-13-44A) (ISP-S-13-44A).
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Department procurement activities, which increased from FSI used time and materials task orders awarded against five $1.8 billion in FY 2001 to $8.2 billion in FY 2012, are largely blanket purchase agreements to support its system modern- directed by the Bureau of Administration, Office of Logistics ization projects. These task orders reduced the contractors’ Management, Office of Acquisitions Management (A/LM/ incentive to perform in a timely manner and to control costs. AQM). A/LM/AQM charges bureaus and offices a one-percent OIG also found that the Bureau of Information Resources fee to administer contracts and grants; a fee intended to Management, Office of Information Assurance (IRM/IA) provide improved services. OIG found that while A/LM/AQM lacked adequate controls to monitor its contracts, task orders, had used some of these fees as intended,4 at least $26 million and blanket purchase agreements, valued at $79 million. was used to subsidize other activities. In addition, A/LM/ AQM did not have a mechanism to track procurement goals. 3 Information Security and Management Without measuring performance, A/LM/AQM cannot assess whether it is providing improved services. The Department still faces difficulties meeting the require- ments of the Federal Information Security Management Act An OIG audit of Task Order 5 of the Worldwide Protective of 2002 (FISMA) and implementing a fully effective infor- Services contract in Baghdad determined that the contracting mation security management program. During the FY 2013 officer’s representative (COR) approved contractor FISMA audit, OIG determined that the Department had not invoices totaling $1.8 million that included unallowable, effectively implemented the National Institute for Standards unsupported, or erroneous costs because the COR had and Technology requirements for risk management, continu- not verified the contractor’s invoices against supporting ous monitoring management, account management and documentation or had not verified that contract goods remote access, or the FISMA and Office of Management and services had been received. OIG also found that the and Budget (OMB) requirements for a Plan of Actions and Department had not analyzed staffing requirements prior Milestones process. These conditions have existed over several to awarding the task order, resulting in extraneous staffing. years and OIG considers the collective security weaknesses a The Department took action to de-scope the task order, significant deficiency. enabling it to save and put to better use approximately $362 million over the life of the contract.5 In FY 2013, OIG found that the Department had not effectively followed and administered proper classification Proper closeout of grants is the critical final step in the grant policies and procedures as required by Executive Order 13526, life cycle and is an essential part of the grants oversight “Classified National Security Information.” Specifically, the process. Although the Department had updated and Department overstated—by as many as 2.4 million—the reinforced closeout procedures, OIG found that three bureaus classification decisions reported in its annual submission were responsible for 865 of 955 expired grants, totaling to the National Archives and Records Administration, $67.4 million in unspent funds that had not been closed. Information Security Oversight Office.7 OIG sampled 51 of 865 grants and determined that, if proper closeout procedures were applied, the Department could put OIG’s inspections also found weaknesses in the management $9.4 million in unspent funds to better use.6 of information security. IRM/IA, established to address information security requirements outlined in Title III OIG inspections continue to find shortcomings in the design of the E-Government Act of 2002, was not fulfilling all and oversight of information technology contracts. In some of these requirements. The absence of a single bureau cases, contractors perform inherently governmental functions. responsible for the information systems security officer OIG also found instances of poor oversight. For example, program resulted in confusion and led to wasted resources.
4 Audit of Department of State Application of the Procurement Fee to Accomplish Key Goals of Procurement Services (AUD-FM-13-29, May 2013). 5 Audit of Bureau of Diplomatic Security Worldwide Protective Services Contract – Task Order 5 for Baghdad Movement Security (AUD-MERO-13-25, March 2013). 6 Audit of Grant Closeout Processes for Selected Department of State Bureaus (AUD-CG-13-31, June 2013). 7 Evaluation of Department of State Implementation of Executive Order 13526, Classified National Security Information (AUD-SI-13-22, March 2013).
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IRM/IA’s mishandling of the certification and accreditation 4 Financial Management process contributed to expired authorizations to operate 52 of the Department’s 309 systems. The Department made progress in resolving financial management concerns but considerable challenges remain. The re-emergence of multiple dedicated Internet network In FY 2012, the Department took steps to address a connections at overseas missions represents another potentially material issue related to after-employment benefits 8 information security deficiency. A few years ago, the for locally employed staff that had led to a qualified opinion Department sought to improve information security by on its FY 2011 financial statements. These actions resulted limiting the number of network connections at missions in the restatement of FY 2011 Foreign Service National and issuing strict approval procedures for establishing after-employment balances, and the Department received an such connections. However, OIG has seen a proliferation unqualified opinion on its FY 2012 and FY 2011 financial of dedicated Internet network connections, including statements. These corrective actions reduced the risk of 10 at one mission. These networks introduce additional significant misstatements, but several deficiencies remained, vectors of attack for those who would seek to compromise including an inaccurate list of posts with after-employment U.S. Government networks. plans and inaccurate personnel information. The audit also identified other serious concerns related to financial reporting, Inspections of the Foreign Service Institute (FSI) and property and equipment, budgetary accounting, un-liquidated the Bureau of International Information Programs (IIP) obligations, and information technology.11 highlighted the complexity of systems development.9 At FSI, OIG found weaknesses in project management, Improper payments represent another management contracting, and budgeting, all of which resulted in poor challenge. OIG reported12 that the Department had taken tracking of major application development costs and steps to prevent improper payments, such as performing timelines. FSI did not ensure accountability through use of risk assessments for programs with significant changes, consistent control gates, decision points, and deliverables developing risk assessment policies, and considering qualitative for projects ranging in cost from $500,000 to $23 million. risk factors. However, the methods the Department used Similarly, IIP did not track the cost of developing individual to identify significant changes and to perform qualitative projects and was unable to provide OIG the amount of assessments needed improvement. The Department money spent. IIP also did not define the scope of various implemented internal controls to prevent, detect, and projects or user requirements. recapture improper payments and identified $11.1 million in improper payments in FY 2012, but it excluded a significant Cloud computing is a continuing challenge. Although number of payments from its recapture audits. cloud computing is the Department’s second highest information technology goal,10 the Department has not yet OIG inspections determined that the Department has had made key decisions and promulgated standards related to its some success using technology to lower costs. For example, implementation. IRM’s Systems and Integration Office, the e-mail, travel, procurement, and accounting systems now lead office in the Department developing cloud technology, allow for remote and lower cost voucher processing. The has developed a plan to implement cloud computing Charleston Global Financial Service Center processes vouchers requirements by 2014. However, future progress by IRM’s for $12 per strip code, well below the worldwide average of Systems and Integration Office depends on strategic $34. More missions are using Charleston but OIG continues and business requirements outlined by Department’s to identify missions that process their own vouchers even senior officials. when there are lower cost options.
8 Dedicated Internet Networks are non-OpenNet Plus connections to the Internet. 9 Inspections of the Bureau of International Information Programs (ISP-I-13-28) and the Foreign Service Institute (ISP-I-13-22). 10 Department of State IT Strategic Plan, Fiscal Years 2011–2013. 11 Independent Auditor’s Report on the U.S. Department of State 2012 and 2011 Financial Statements (AUD-FM-13-08, November 2012). 12 Audit of Department of State FY 2012 Compliance With Improper Payments Requirements (AUD-FM-13-23, March 2013).
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5 Military to Civilian-led Transitions— onto existing facilities in Baghdad and Erbil and to address Iraq and Afghanistan infrastructure needs in Basrah. But the frequent rotation of construction project directors, a lack of consistent oversight, The United States completed a transition from a military- poor contractor performance, delays in material shipments, led to a civilian-led presence in Iraq in December 2011 and weak coordination among projects have negatively affected and is planning a similar transition in Afghanistan in 2014. construction quality and delayed critical security projects. The Department needs to apply lessons learned from the Afghanistan: The Department continues to face challenges Iraq transition to the pending transition in Afghanistan. in supporting and sustaining the civilian presence in Iraq: On January 1, 2012, the Department became solely Afghanistan as the U.S. military withdraws. OIG plans to responsible for the U.S. Mission–Iraq (USM–I) and its report on the effectiveness of the Department’s and Embassy associated foreign policy goals, which are designed to foster a Kabul’s planning for the transition to a reduced U.S. military sustainable economy and stronger democracy in Iraq. Embassy presence in Afghanistan in October 2013. OIG and the Baghdad, the Bureau of Near Eastern Affairs, and the Bureau Special Inspector General for Afghanistan Reconstruction of the Comptroller and Global Financial Services have made have reported that security remains a primary challenge. substantial progress establishing consulates and other support Low literacy levels and lack of basic vocational skills have facilities and sustaining programs and operations. Nonetheless, hindered the development of the Afghan National Security the Department continues to experience challenges sustaining Forces. The Department continues to face significant costs and and rightsizing USM–I as security remains volatile and the security issues related to convoy protection and movement Iraqi government’s commitment to the U.S. presence and security and monitoring private security contractors. Most its programs remains unclear for security. In 2012, USM–I Afghanistan Infrastructure Fund projects are experiencing required $3.38 billion solely for Iraq operations.13 acquisition and funding delays, causing interruptions in project execution schedules. The uncertainty of the size and In August 2013, OIG reported that USM–I had taken and composition of the Afghan security forces over the next few planned significant steps to reduce the U.S. presence in Iraq years could result in inefficient and costly procurements if by closing nine sites and reducing staff by 61 percent, from not closely managed. approximately 16,200 to 6,320.14 In addition, USM–I ended a police development program that the Government of Iraq had A bilateral security agreement, which will outline the not supported, and significantly reduced security assistance status and role of U.S. military forces after the North and cooperation activities. The process for determining staffing Atlantic Treaty Organization (NATO) combat mission requirements did not include a systematic analysis that fully ends December 31, 2014, has not been completed, and considered U.S. foreign policy priorities.15 As a result, there as of August 28, 2013, negotiations for the agreement were is no assurance that the reduced staff of 6,320 would provide suspended. The completion of the agreement is necessary for the proper number or skill mix of personnel needed to meet the mission to plan for both the number and locations of staff priorities while minimizing security risk and optimizing costs. outside Kabul since security issues greatly affect provincial operations. The Department will need to react quickly once The Baghdad Master Plan was prepared to guide USM–I when decisions are made regarding the agreement and post-2014 it assumed facilities management responsibilities at military- U.S. or NATO troop levels. operated facilities after the transition to a civilian-led mission. However, the plan was based on the continuation of the U.S. Establishing additional facilities in Afghanistan increases the presence for approximately 16,200 staff and became obsolete as Department’s costs as it becomes responsible for supplies USM–I reduced its staffing. The Bureau of Overseas Buildings and all services. Adequate oversight and monitoring of funds Operations has worked with USM–I to consolidate staff will be especially important as the transition takes place.
13 Audit of the U.S. Mission Iraq Staffing Process (AUD-MERO-13-33, August 2013). 14 Ibid. 15 Inspection of Embassy Baghdad and Constituent Posts (ISP-I-13-25A).
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In addition, it will become steadily more difficult for both training remained in their positions for a minimum of two implementing and oversight agencies to monitor projects years, a condition designed to ensure that the $5 million in in Afghanistan, even as the United States plans to increase annual antiterrorism assistance builds host-country capacity. direct assistance to Afghanistan. Four additional inspections recommended the Department develop more effective assistance monitoring plans.21 6 Foreign Assistance Coordination The Department has taken steps to better monitor and Oversight and evaluate foreign assistance. In 2012, it issued The Department continues to face obstacles in oversight and guidance requiring bureaus to conduct periodic coordination of foreign assistance. OIG continues to find evaluations of their highest cost programs. In 2013, opportunities to coordinate assistance programs better.16 For the Department awarded a contract to facilitate these example, the U.S. Special Envoy for Sudan and South Sudan evaluations. The Department also issued guidance does not routinely coordinate its $10 million in programs requiring that certified grant officer representatives 22 with the embassy and other agencies. It is therefore unclear oversee all grants worth more than $100,000. whether the programs duplicate or complement other Budget cuts, likely to continue in the future, highlight the programs in country valued at $1.2 billion. In Kyiv, there importance of designing sustainable assistance programs. is no consolidated tally of U.S. Government spending on A number of OIG reports address this challenge.23 In nonproliferation and related assistance. Assistance coordination Khartoum, activities to further women’s peace and security in Rabat and Baghdad need strengthening. At some missions,17 are unlikely to continue when U.S. funding runs out, ambassadors make a concerted effort to inventory and significantly reducing the impact of this $470,000 grant. coordinate all assistance programs. Although the Office of U.S. In Abuja, where the United States provided almost Foreign Assistance Resources’ goal of coordinating all assistance $480 million in AIDS assistance in 2012, the Nigerian programs has yet to be achieved, a recent OMB bulletin government is not on track to meet funding commitments directing all agencies to report on their foreign assistance it made. In Baghdad, OIG noted that only three of programs should further this effort.18 The Office of U.S. 29 projects included cost-sharing provisions. Foreign Assistance Resources continues to improve a tracking system designed to inventory all State and USAID programs. 7 Public Diplomacy Identifying officers with the skills needed to oversee assistance programs has proven challenging. At four missions in 2013,19 Public diplomacy is an important diplomatic tool and is OIG found that officers overseeing foreign assistance did not increasingly using social media. While the Department has have appropriate training or required certifications. Insufficient embraced social media (all missions employ social media staffing prevented Embassies Juba and Khartoum from properly through Facebook, Twitter, or other media), more oversight monitoring refugee and other humanitarian programs.20 is needed. OIG continues to find missions and bureaus that Embassy Baghdad failed to verify that Iraqi government focus too much on raising fan numbers or general engage- employees attending Department-funded antiterrorism ment statistics rather than specific public diplomacy goals.24
16 Inspections of Embassies Juba, South Sudan (ISP-I-13-29A), Kyiv, Ukraine (ISP-I-13-45A), Rabat, Morocco (ISP-I-13-30A), and Baghdad, Iraq (ISP-I-13-25A). 17 Inspection of Embassy Phnom Penh, Cambodia (ISP-I-13-08A). 18 Inspection of the Office of the Director of U.S. Foreign Assistance (ISP-I-11-57), 1 FAM 033, March 2006 National Security Strategy; OMB Bulletin 12-01, Guidance on Collection of Foreign Assistance Data. 19 Inspections of Embassies Baghdad, Iraq (ISP-I-13-25A), Bangui, Central African Republic (ISP-I-13-13A), Kyiv, Ukraine (ISP-I-13-45A), and Moscow, Russia (ISP-I-13-48A). 20 Inspections of Embassies Khartoum, Sudan (ISP-I-13-37A) and Juba, South Sudan (ISP-I-13-29A). 21 Inspections of the Office to Monitor and Combat Trafficking in Persons (ISP-I-12-37), Office of the Global AIDS Coordinator (ISP-I-13-47), and Embassies Manila, Philippines (ISP-I-13-10A) and Baghdad, Iraq (ISP-I-13-25A). 22 Grants Policy Directive Number 16, Revision 3. 23 Inspections of Embassies Bangui, Central African Republic (ISP-I-13-13A), Abuja, Nigeria (ISP-I-13-16A), and Baghdad, Iraq (ISP-I-13-25A). 24 Inspection of the Bureau of International Information Programs (ISP-I-13-28).
126 | United States Department of State • 2013 Agency Financial Report INSPECTOR GENERAL’S ASSESSMENT OF MANAGEMENT AND PERFORMANCE CHALLENGES | OTHER INFORMATION
The Bureau of International Information Programs spent Because of the positive impact foreign visitors have on U.S. $630,000 on two campaigns that succeeded in increasing the travel and tourism industries, President Obama instructed number of its English Facebook page fans. OIG found the the Department to increase its non-immigrant visa (NIV) bureau could reduce spending and increase its strategic impact processing capacity in Brazil and China by 40 percent over by focusing advertising on specific public diplomacy goals. the ensuing year, and to ensure that 80 percent of NIV The Department’s social media working group has recognized applicants were interviewed within three weeks of receipt of this challenge and endorsed “judicious and targeted use of an application.31 OIG inspected both operations. Embassy paid advertising.”25 Recent guidance advocates “selective Brasilia met the President’s goals by increasing staffing using use of social media advertising” in a “strategically planned, first and second-tour officers and the limited non-career well-targeted” campaign with preset goals and evaluation.26 appointment (LNA) mechanism that hires language-qualified officials for 18-month periods.32 The LNA mechanism allowed A number of missions, bureaus, and functional bureaus use Embassy Brasilia to increase its workforce quickly and could social media to discuss the same event. OIG raised concerns prove helpful if immigration legislation is passed that requires about duplication, cost effectiveness, and policy coordination. additional visa adjudicators. Embassy Moscow has sufficient For example, in 2011 OIG recommended the Department staff and resources to meet its visa workload, but has not clarify roles and responsibilities of various bureaus in clearing met the three-week goal because consular managers have 27 social media content. The Department has not yet clarified not adequately trained staff or monitored operations.33 these responsibilities.28 The Department recently awarded a worldwide contract, Management oversight of exchange visitor programs, especially valued at $2.8 billion over 10 years, to provide visa applicants the Summer Work Travel program, is a continuing challenge with information, make appointments, collect biometrics and a significant deficiency. The Bureau of Educational and and fees, and deliver documents. The contract is designed to 29 Cultural Affairs has taken steps to provide better oversight. improve customer service.34 In Brazil, where contract payments 30 OIG recommended additional measures in 2013 including could reach $186 million over six years, OIG found consular requiring U.S. sponsors to disclose all sponsor fees charged managers do not have access to contract documents and to exchange visitors; conduct an annual independent audit of therefore cannot determine whether contractors were meeting sponsors of all J visa programs; and submit a proposal to the service standards.35 Deputy Secretary of State for Management and Resources to determine the viability of ending or transferring its responsibil- 9 Leadership ity for physician, au pair, intern, teacher, and trainee categories. Maintaining excellence in the Department’s top leadership 8 Consular Operations positions remains a challenge. OIG identified significant leadership problems in two domestic bureaus in 2013. Demand for American visas has increased dramatically and In the Bureau of International Information Programs, slow visa processing can be detrimental to bilateral relations. the front office created an atmosphere that lead to poor
25 Social Media Working Group Report, November 23, 2012, Memo for Tara Sonenshine. 26 13 State 06411 Social Media Guidance Cable #1: Social Media Advertising. 27 Inspection of the Bureau of Near Eastern Affairs (ISP-I-11-49A). 28 Report of the Social Media Working Group, DTD November 2012. 29 Compliance Follow-up Review, Bureau of Educational and Cultural Affairs (ISP-C-13-51). 30 Ibid. 31 Executive Order 13597. 32 Inspection of Embassy Brasilia and Constituent Posts, Brazil (ISP I-13-40A). 33 Inspection of Embassy Moscow and Constituent Posts, Russia (ISP-I-13-48A). 34 Ibid. 35 Inspection of Embassy Brasilia and Constituent Posts, Brazil (ISP-I-13-40A).
2013 Agency Financial Report • United States Department of State | 127 OTHER INFORMATION | INSPECTOR GENERAL’S ASSESSMENT OF MANAGEMENT AND PERFORMANCE CHALLENGES
policy implementation, low morale, and wasteful practices, positions average $232,000 more per person than domestic including potential problems with more than half the positions; establishing a new position overseas costs $361,547 front office’s travel vouchers.36 The Bureau of Information more than establishing a new position domestically.41 Resource Management, Office of Information Assurance was not fulfilling its role of providing effective oversight In 2012, OIG found regional positions that the Department of cybersecurity.37 could eliminate or place in the United States or a more cost-effective location.42 For example, 99 regional OIG’s FY 2013 overseas inspections generally found information management officer positions are located positive leadership but also identified deficiencies overseas to provide services requiring an immediate response. including failure to communicate goals, lack of feedback, However, the majority of support they provide is routine or and micromanagement.38 In 2010 and 2012,39 OIG could be provided remotely from the United States. OIG sent memoranda to the Department aimed at improving recommended reducing these information management mission leadership. The 2012 report stated that, while most positions by 80 percent, which could yield more than ambassadors and deputy chiefs of mission were performing $18 million annual cost savings. More importantly, the well, approximately 25 percent had weaknesses that negatively reductions could limit the risk to employees, including impacted effectiveness and morale. OIG recommended the the eight posted to Cairo. Regional procurement agent Department institute a system to assess performance that salaries in Frankfurt are among the highest in the world; included (1) a confidential survey of staff and (2) a provision relocating those functions to a lower cost mission could that assistant secretaries follow up with corrective actions. save $1 million annually. Department officials are piloting such a system in the Bureau of South and Central Asian Affairs.40 Such a system The OIG found no compelling reasons to maintain a is particularly important because OIG inspection teams no consulate in Casablanca, less than 60 miles from Embassy longer produce evaluation reports on Department leaders Rabat. Embassy Rabat could absorb the workload and five during routine inspections. positions could be eliminated, for a savings of more than $2.5 million per year. The Department could also forgo 10 Rightsizing construction of a new consulate building in Casablanca, estimated at $170 million. OIG has recommended closing OIG continues to find examples of the Department a number of consulates over the last five years. Reviewing assigning tasks to overseas personnel when those tasks potential consulate closures is a task associated with the could be performed less expensively from the United States. Quadrennial Diplomacy and Development Review (QDDR) Consequently, more employees and their families face security goal of “Working Smarter.”43 A list of potential consulate risks associated with being overseas. Annual costs for overseas closures is under review in the Deputy Secretary’s office.44
36 Inspection of the Bureau of International Information Programs (ISP-I-13-28). 37 Inspection of the Bureau of Information Resource Management, Office of Information Assurance (ISP-I-13-38). 38 Inspections of Embassies Khartoum, Sudan (ISP-I-13-37A), Rabat, Morocco (ISP-I-13-30A), and Bangui, Central African Republic (ISP-I-13-13A). 39 Implementation of a Process to Assess and Improve Leadership and Management of Department of State Posts and Bureaus (ISP-I-10-68), Improving Leadership at Posts and Bureaus (ISP-I-12-48). 40 Improving Leadership at Posts and Bureaus (ISP-I-12-48) and Compliance Analysis 13 MDA 7772. 41 Inspection of Regional Information Management Centers (ISP-I-13-14), The Bureau of Budget and Planning’s FY 2014 New Position Cost Model. 42 Inspections of Regional Information Management Centers (ISP-I-13-14), Regional Procurement Support Offices, Frankfurt, Germany, and Fort Lauderdale, United States (ISP-I-13-34), and Regional Support Center Frankfurt, Germany (ISP-I-13-32). 43 Appendix I of the 2011 QDDR Implementation Guidance related to “Working Smarter”. 44 July 25, 2012 compliance correspondence related to ISP-I-11-64A.
128 | United States Department of State • 2013 Agency Financial Report MANAGEMENT’S RESPONSE TO INSPECTOR GENERAL | OTHER INFORMATION
Management’s Response to Inspector General
n FY 2013, the Department of State’s Office of Inspector General (OIG) identified management and performance challenges in the areas of: protection of people and facilities; contract and procurement management; information security and I management; financial management; military to civilian-led transitions—Iraq and Afghanistan; foreign assistance coordination and oversight; public diplomacy; consular operations; leadership; and rightsizing. The Department promptly takes corrective actions in response to OIG findings and recommendations. Highlights are summarized below.
1. PROTECTION OF PEOPLE AND FACILITIES Challenge Protecting Department employees and facilities overseas remains a significant management challenge. Summary Actions Taken In 2013, the Department formed and deployed Interagency Security Assistance Teams (ISATs) to survey 19 posts identified as “high-threat, high-risk” (HTHR). The ISATs assessed each HTHR post’s operating environment, the host government’s willingness and capabilities to protect the U.S. presence, and physical security posture and security assets. These reviews resulted in over 200 recommendations. These HTHR posts receive increased focus and attention on threat response, threat mitigation efforts, and security resources. Actions Remaining The Department will accomplish multiple projects in the near future. The Department intends to complete the remaining ISAT recommended actions; hire and deploy additional Diplomatic Security personnel; increase the number of Marine Security Guard detachments; deploy additional armored vehicles; conduct and complete perimeter security projects; upgrade compound access control points; design and construct post safe haven areas; and conduct research, development, and deployment of new security technologies. 2. CONTRACT AND PROCUREMENT MANAGEMENT Challenge The Department continues to face challenges with the proper management, oversight, and accountability of Summary contracts and procurements, including grants and cooperative and interagency agreements. Actions Taken In 2013, the Bureau of Administration strengthened its grants management practices. The Department received a monthly report from GrantSolutions.gov which listed all grants ready for closeout. Grants officers and specialists then de-obligated funds and closed expired grants. The Department closed 186 of 955 expired grants in the last two years, resulting in the de-obligation of over $9 million. Actions Remaining The Department hired a new director to identify enhanced performance measurement practices and create a plan to implement them. 3. INFORMATION SECURITY AND MANAGEMENT Challenge The Department still faces difficulties meeting the requirements of the Federal Information Security Summary Management Act of 2002 and implementing a fully effective information security management program. Actions Taken In 2013, the Department worked to identify, document, and finalize a risk management framework for information systems. Efforts continue to complete the full assessment and authorization (A&A) of all the classified and unclassified general support and related contractor systems, in accordance with National Institute of Standards and Technology’s Special Publication 800-53, Revision 3. Actions Remaining The Department added two dedicated staff to the A&A team, and more dedicated staff will be added in 2014. The Department will communicate all information assurance requirements driven by changes in processes, tools, or templates. All classified and unclassified systems are slated to achieve full A&A.
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4. FINANCIAL MANAGEMENT Challenge The Department made progress in resolving financial management concerns but considerable Summary challenges remain. Actions Taken In FY 2013, the Department continued to improve the management of FSN after-employment benefits, including establishing a comprehensive inventory by country. With regard to financial reporting, the Department improved procedures relating to the review of abnormal account balances and routine analytical reviews. The Department also considerably increased the centralization of vouchering services from posts, and continued to improve its global financial platform to meet the Department’s 21st Century diplomatic needs. At the same time, additional focus was directed at improving our improper payment processes. Specifically, the Department updated its policies and procedures, redefined its programs and activities to be in alignment with the manner that funding is received, performed a risk assessment of all programs and activities, and expanded the number and type of payments subject to recapture audits. Actions Remaining The Department will continue efforts at addressing concerns in property and equipment, budgetary accounting, and un- liquidated obligations. The Department will also continue its efforts to modernize, standardize, and consolidate its global financial platform to improve our financial business processes and produce greater efficiencies and effectiveness. 5. MILITARY TO CIVILIAN-LED TRANSITIONS—IRAQ AND AFGHANISTAN Challenge The Department continues to experience challenges sustaining and rightsizing U.S. Mission–Iraq (USM–I) as Summary security remains volatile and the Government of Iraq’s commitment to the U.S. presence and its programs remains unclear for security. Actions Taken Overall staffing at USM–I was reduced from approximately 16,000 at the time of Departments of Defense-State transition in 2012 to approximately 6,000. OIG’s August 2013 report, “Audit of U.S. Mission Iraq Staffing Process,” concluded that the downsizing did not include a systematic analysis that fully considered U.S. foreign policy priorities. The Department disagreed with this conclusion and their response is included in an Appendix to the publication. Actions Remaining The Ambassador insists that all stakeholders actively participate in Iraq transition planning and hold agency heads accountable for the execution of their parts of the transition plans. Now that the transition is nearly complete, the Ambassador requested a right-sizing review, which will occur early in 2014. Challenge The Department continues to face challenges in supporting and sustaining the civilian presence in Summary Afghanistan as the U.S. military withdraws. Actions Taken The Department has established processes, based on lessons learned in Iraq and coordinated by a Transition Office in Embassy Kabul, designed to continuously review challenges related to supporting and sustaining U.S. civilian presence in an uncertain environment. As the Administration continues to review troop levels for a post-2014 security assistance mission, the Department has worked to ensure it has adequate funding to develop a viable civilian platform that supports whatever option the President may choose. Actions Remaining Security considerations will continue to impact decisions on civilian operations, affecting, among other issues, the costs and logistics associated with personnel movements and maintaining private contracts for security support. The planned U.S. Department of Defense train, advise, and assist mission will continue to shape the size and composition of the Afghan security forces. 6. FOREIGN ASSISTANCE COORDINATION AND OVERSIGHT Challenge The Department continues to face obstacles in oversight and coordination of foreign assistance. Summary Actions Taken The Department’s Bureau of Budget and Planning (BP) and Office of U.S. Foreign Assistance Resources (F), with USAID, coordinate the management of bureau and mission strategic and resource planning. Strategic planning is separate from and precedes resource planning to allow missions and bureaus to align their annual resource requests with achieving strategic goals. The strategies require collaboration across bureaus and among all U.S. agencies at posts to improve efficiency and coordination of efforts. BP, F, and USAID also conduct and/or manage additional ongoing reviews to inform resource decisions, such as data-driven reviews of agency priority goals, roundtables to learn about bureau programs and budget priorities, the annual collection of qualitative and quantitative foreign assistance performance data from missions worldwide, and a requirement that bureaus conduct evaluations of all large programs. Actions Remaining To strengthen the use of evidence in the oversight and coordination of foreign assistance programs, BP and F will augment the evaluation policy guidance to clarify the use of evaluation findings by appropriate Bureau officials to inform program decisions. Further, BP and F will consult with the QDDR office regarding the specification of program and project management guidelines, as well as capacity building for these activities, in the 2014 QDDR.
130 | United States Department of State • 2013 Agency Financial Report MANAGEMENT’S RESPONSE TO INSPECTOR GENERAL | OTHER INFORMATION
7. PUBLIC DIPLOMACY Challenge Management oversight of exchange visitor programs, especially the Summer Work Travel program, is a Summary continuing challenge and a significant deficiency. Actions Taken The Department significantly reformed Summer Work Travel regulations and has greatly increased monitoring and oversight of the program in order to protect the health, safety, and welfare of participants and strengthen the program’s core cultural purpose. Actions Remaining To further strengthen these reform efforts, the Department is considering further changes to the specific regulations. The Department is also considering the OIG recommendation to determine the appropriate oversight responsibility for the Exchange Visitor Program’s physician, au pair, intern, teacher, and trainee categories. 8. CONSULAR OPERATIONS Challenge Demand for American visas has increased dramatically and slow visa processing can be detrimental to Summary bilateral relations. Actions Taken The Consul General at one inspected post tasked the non-immigrant visa (NIV) unit to develop a plan to interview 1,200 visa applicants per day (increased from approximately 800 per day), plus adjudicate drop box cases, by the start of the Summer Work Travel peak visa season, which begins in Spring 2014. This plan requires evaluating workflow, officer and staff productivity, infrastructure limitations, and other factors. The Consul General at this post has already scheduled a strategy session for 2014 for all officers and NIV staff to evaluate the NIV process. Actions Remaining The Consul General at this one post tasked the organization to develop an updated internal website for posting of Consular policy notices, standard operating procedures, links to references and regulations, and calendars. The updated SharePoint site has recently been completed and is in the clearance process prior to launch. The Bureau of Consular Affairs is providing management training and its 1CA toolkit to Consular sections around the world. These sections are using the toolkit to implement the 1CA management framework and “leaning out” their workflows by removing steps that do not add value. 9. LEADERSHIP Challenge Maintaining excellence in the Department’s top leadership positions remains a challenge. Summary Actions Taken The Department has developed and field-tested a “Chief of Mission Survey” at nine posts in the Bureau of South Central Asia. Based on the results of this pilot program, the Department will adapt the survey deployment and data collection processes for fielding to 180 posts. Actions Remaining The Department intends to field the full survey early in 2014. Department Assistant Secretaries will receive the survey results and address areas of concern identified with the individual Chiefs of Mission. 10. RIGHTSIZING Challenge OIG continues to find examples of the Department assigning tasks to overseas personnel when those tasks Summary could be performed less expensively from the United States. Actions Taken Management Policy, Rightsizing, and Innovation agreed to conduct a rightsizing review of Regional Information Management Centers. This review will provide a further analytical basis from which to make reasonable and rational staffing decisions. Actions Remaining Select bureaus have follow-up actions to address rightsizing concerns. For example, the Bureau of Near East Asia will further assess an OIG recommendation to close U.S. Mission operations in Casablanca, Morocco, and move those operations to the U.S. Embassy in Rabat.
2013 Agency Financial Report • United States Department of State | 131 OTHER INFORMATION | SUMMARY OF FINANCIAL STATEMENT AUDIT AND MANAGEMENT ASSURANCES
Summary of Financial Statement Audit and Management Assurances
s described in this report’s section called Departmental Governance, the Department tracks audit material weaknesses as well as other requirements of the Federal Manager’s Financial Integrity Act of 1982 (FMFIA). Below is management’s A summary of these matters as required by OMB Circular A-136, Financial Reporting Requirements, revised. Summary of Financial Statement Audit
Audit Opinion: Unmodified Restatement: Yes
MATERIAL WEAKNESSES BEGINNING BALANCE NEW RESOLVED CONSOLIDATED ENDING BALANCE Financial Reporting 1 0 1 0 0 Total Material Weaknesses 1 0 1 0 0
Summary of Management Assurances
MATERIAL WEAKNESSES BEGINNING BALANCE NEW RESOLVED CONSOLIDATED REASSESSED ENDING BALANCE EFFECTIVENESS OF INTERNAL CONTROL OVER FINANCIAL REPORTING (FMFIA § 2) Statement of Assurance: Unqualified Total Material Weaknesses 0 0 0 0 0 0 EFFECTIVENESS OF INTERNAL CONTROL OVER OPERATIONS (FMFIA § 2) Statement of Assurance: Unqualified ECA Summer Work Travel Program 1 0 1 0 0 0 Total Material Weaknesses 1 0 1 0 0 0 CONFORMANCE WITH FINANCIAL MANAGEMENT SYSTEM REQUIREMENTS (FMFIA § 4) Statement of Assurance: Systems conform to financial system management requirements Total Non-conformances 0 0 0 0 0 0
AGENCY AUDITOR COMPLIANCE WITH FEDERAL FINANCIAL MANAGEMENT IMPROVEMENT ACT (FFMIA) 1. System Requirements No noncompliance noted Noncompliance noted 2. Accounting Standards No noncompliance noted Noncompliance noted 3. USSGL at Transaction Level No noncompliance noted Noncompliance noted
DEFINITION OF TERMS Beginning Balance: The beginning balance will agree with the ending balance of material weaknesses from the prior year. New: The total number of material weaknesses that have been identified during the current year. Resolved: The total number of material weaknesses that have dropped below the level of materiality in the current year. Consolidation: The combining of two or more findings. Reassessed: The removal of any finding not attributable to corrective actions (e.g., management has re-evaluated and determined a material weakness does not meet the criteria for materiality or is redefined as more correctly classified under another heading (e.g., section 2 to a section 4 and vice versa)). Ending Balance: The agency’s year-end balance.
132 | United States Department of State • 2013 Agency Financial Report IMPROPER PAYMENTS INFORMATION ACT AND OTHER LAWS AND REGULATIONS | OTHER INFORMATION
Improper Payments Information Act and Other Laws and Regulations
Improper Payments Information Act, Improper Payment reviews. Two examples include the as Amended by IPERA Short-term Residential Lease and Construction programs. The Congressional Budget Justification represents the he Improper Payments Information Act of 2002 Department’s annual funding request to the Congress and (IPIA), Public Law No. 107-300, requires agencies provides important information about the Department’s T to annually review their programs and activities to programs and activities, organizational performance targets identify those susceptible to significant improper payments. relating to the Department’s Strategic Plan, and the resources During FY 2010, the President signed into law the Improper needed to achieve the Department’s performance goals. Payments Elimination and Recovery Act (IPERA, Public Law No. 111-204), which amends the Improper Payments The Department conducted a risk assessment of all programs Information Act of 2002, and repeals the Recovery Auditing and activities in FY 2013. Risk assessments of programs and Act (Section 831 of the FY 2002 Defense Authorization Act, activities involve an evaluation of the risk factors described in Public Law No. 107-107). IPERA significantly increases OMB Circular A-123 Appendix C, as well as consideration agency payment recapture efforts – by expanding the types of the work performed in compliance with OMB Circular of payments that can be reviewed and lowering the threshold A-123 Appendix A, internal Department information of annual outlays that requires agencies to conduct payment regarding the operation of programs and activities, results recapture audit programs. IPERA defines significant improper of audits performed by the Office of Inspector General, payments as annual improper payments in a program that the GAO, the Special Inspector General for Afghanistan exceed both 2.5 percent of program annual payments and Reconstruction, the Special Inspector General for Iraq $10 million, or that exceed $100 million, regardless of the Reconstruction, and other relevant information. In addition, error rate. Once those highly susceptible programs and during FY 2013 the Department expanded its methodology activities are identified, agencies are required to estimate and for conducting risk assessments by integrating results from report the annual amount of improper payments. Generally, the prior OIG review of IPERA recommendations, reviews an improper payment is any payment that should not have conducted to meet compliance requirements with OMB been made or that was made in an incorrect amount under Circular A-123 Appendix A, as well as with our FMFIA statutory, contractual, and administrative or other legally program. Based on this series of internal control review applicable requirement. techniques, the Department determined that none of its programs are risk-susceptible for making significant improper IPIA, AS AMENDED BY IPERA, REPORTING payments at or above the threshold levels set by OMB. DETAILS Risk assessments over all programs are done every three years. The Department defines its programs and activities in In the interim years, risk assessments evaluating programs alignment with the manner of funding received through that experience any significant legislative changes and/or Appropriations, as further subdivided into funding for significant increase in funding will be done to determine operations carried out around the world. For example, if the Department continues to be at low risk for making the Embassy Security, Construction, and Maintenance significant improper payments at or above the threshold Appropriation is comprised of several programs for levels set by OMB.
2013 Agency Financial Report • United States Department of State | 133 OTHER INFORMATION | IMPROPER PAYMENTS INFORMATION ACT AND OTHER LAWS AND REGULATIONS
OVERPAYMENTS RECAPTURED OUTSIDE OF PAYMENT RECAPTURE AUDITS Cumulative Cumulative Amount Amount Amount Amount Amount Amount Identified Recovered Identified Recovered Identified Recovered Agency Source (CY) (CY) (PYs) (PYs) (CY+PYs) (CY+PYs) CGFS Office of Claims $11.2 million $9.9 million $26.7 million $26.0 million $37.9 million $35.9 million OIG $10.8 million $10.8 million $27.7 million $27.7 million $38.5 million $38.5 million CY=FY 2013, PYs=FY’s 2012 and earlier
RECAPTURE OF IMPROPER PAYMENTS years’ activity in the Payment Recapture Audit Reporting REPORTING on the following page, while activity since 2011 has A number of improper payment activities, both preventative accumulated in the table above entitled Overpayments and recovery, exist for domestic and overseas payments at the Recaptured Outside of Payment Recapture Audits. Department, Bureau, post, and program levels to support IPERA efforts and ensure the integrity and accuracy of During FY 2013, OC’s efforts identified and confirmed Department payments. The CGFS has established a two- transactions totaling $11.2 million of actual duplicate/ tiered improper payment monitoring and review program improper payments, of which we recovered $9.7 million, that consists of activity performed by the Office of Claims in addition to collecting $205 thousand of the prior year (OC) and the Office of Oversight and Management Analysis unrecovered balance of $728 thousand. Thus, total amounts (OMA). Improper payment reviews are performed initially by recovered in FY 2013 (i.e. current year) were $9.9 million. OC as an integral part of our post-payment review process, At the end of FY 2013, the Department has collected all but and secondly by OMA. While many agencies hire external $1.5 million of the current year identified amount and $523 recapture auditors to perform a secondary review, this thousand of the prior years’ identified amount, resulting function is performed more efficiently within the Department in the cumulative outstanding balance of approximately by OMA. Because the activity performed by OC is a post- $2 million. Additionally, the Office of Inspector General payment (versus recapture payment) review process, those conducted investigations spanning a breadth of content, results are not considered recapture audits and are considered including fraud, embezzlement, bribery and kickbacks, false an activity outside of recapture audits. Because the OMA statements, and employee misconduct. Recoveries obtained activity is secondary and consistent with a function that an as a result of OIG investigations are also presented in the external auditor would perform, for reporting purposes the table above. OMA’s activity is considered recapture. Payment Recapture Audit Reporting Overpayments Recaptured Outside of Payment The OMA conducts a monthly query of domestic vendor Recapture Audits payments. These payments represent the largest category of Improper payment identification and collection are Department-made payments subject to IPERA recapture essential functions of the accounts payable process and the audit requirements, focusing on identifying potential paying office’s operations. As such, OC has established an improper and duplicate payments. Currently, these payments internal debt management unit, whose primary mission are reviewed on a monthly basis using IDEA - Data Analysis is to identify and collect improper payments. Historically, Software. An automated analysis is executed to run matches this activity represented the majority of the Department’s of vendor invoice numbers and payment amounts against recapture results. However, starting in FY 2011 based current payment data and payments dating back to 2007. on the revised IPERA guidance from OMB, it is classi- In addition, during FY 2013 OMA expanded the IPERA fied and reported as overpayments recaptured outside of recapture audit procedures for the Department by including recapture payment audits activity. OC results represent quarterly IPERA recapture audits of the Department’s the majority of the $41.1 million amounts shown as prior overseas payments subject to review. The CGFS approach
134 | United States Department of State • 2013 Agency Financial Report IMPROPER PAYMENTS INFORMATION ACT AND OTHER LAWS AND REGULATIONS | OTHER INFORMATION
PAYMENT RECAPTURE AUDIT REPORTING % of Actual Amount % of Amount Amount Amount Amount Recovered Outstanding Amount Subject to Reviewed Identified out of out of Determined Program Review for and for Amount Amount Amount Amount Not to be or Type of Reporting Reported Recovery Recovered Identified Outstanding Identified Collectable Activity Payment (CY) (CY) (CY) (CY) (CY) (CY) (CY) (CY) *combined Contracts $10.8 billion $10.2 billion $2,253 $2,253 100% $0 0% $0
PAYMENT RECAPTURE AUDIT REPORTING (continued) % of Amount Determined Not to be Cumulative Cumulative Collectable Amounts Amounts Amounts out of Identified Identified Cumulative Cumulative Determined Program Amount for Amounts for Amounts Amounts Not to be or Identified Recovery Recovered Recovery Recovered Outstanding Collectable Activity Type of Payment (CY) (PYs) (PYs) (CY + PYs) (CY + PYs) (CY+PYs) (CY+PYs) *combined Contracts 0% $41.1 million $41.1 million $41.1 million $41.1 million $0 $0 CY=FY 2013, PYs=FY’s 2012 and earlier * Represents the collective amounts reviewed, identified, and recovered. The CY amounts identified and recovered are shown by individual program in the following three tables. has incorporated various manual and automated data were reviewed, resulting in the identification of 2 transactions analysis techniques and processes to identify, validate and totaling $2,253 as improper payments (that are not duplicative collect improper payments, including use of data mining of the results first identified by the Office of Claims). The software, manual sampling of internal payment records, Department has collected all $2,253 of the current year U.S. Treasury taxpayer identification number matching, and identified amount, resulting in a recovery rate of 100 percent, sampling of vendors. Grant payments made on behalf of in addition to recovering the prior year outstanding balance of the Department by the Department of Health and Human $215. The recaptured funds were returned to the originating Services through their Payments Management System are appropriation. The Department performs analysis to determine not currently included in the automated analysis using the cause of improper payments and has determined the IDEA due to system and data limitations. primary reasons are linked to vendor billing issues and initial approval for payment. Increased quality control processes Beginning in FY 2011, this activity represents the by OC in both the payment generation and internal post- Department’s recapture results, pursuant to revised IPERA payment review processes have contributed to lower improper guidance from OMB, as the Department concluded only recapture audit amounts. Specifically, the majority of improper this internal activity fits the definitions and purpose of payments identified through recapture audits has already been the IPERA Recapture Audit program requirements. These identified by the Office of Claims, and as such, are reported in results are presented in the table entitled Payment Recapture the Overpayments Recaptured Outside of Payment Recapture Audit Reporting. Audits table.
For FY 2013, $10.2 billion in domestic payments and $600 The CGFS automated duplicate or improper payment million in overseas payments were subjected to recapture program using the domestic payment file for recapture audits. Of those amounts, 116,945 domestic payments totaling audit analysis has proven to be a cost effective tool. The $10.2 billion and overseas payments totaling $46 million domestic file presently includes the majority of payments
2013 Agency Financial Report • United States Department of State | 135 OTHER INFORMATION | IMPROPER PAYMENTS INFORMATION ACT AND OTHER LAWS AND REGULATIONS
PAYMENT RECAPTURE AUDIT TARGETS CY Recovery Rate (Amount CY CY Recovered CY + 1 CY + 2 CY + 3 Program or Type of Amount Amount / Amount Recovery Recovery Recovery Activity Payment Identified Recovered Identified) Rate Target Rate Target Rate Target Diplomatic policy Contract $2,175 $2,175 100% 90% 90% 90% and support ICASS Contract $78 $78 100% 90% 90% 90%
AGING OF OUTSTANDING OVERPAYMENTS Program or Type of CY Amount Outstanding CY Amount Outstanding CY Amount Outstanding Activity Payment (0-6 months) (6 months to 1 year) (over 1 year) Diplomatic policy Contract $0 $0 $0 and support ICASS Contract $0 $0 $0
DISPOSITION OF RECAPTURED FUNDS Agency Financial Expenses to Payment Management Office of Program or Type of Administer Recapture Improvement Original Inspector Returned to Activity Payment the Program Auditor Fees Activities Purpose General Treasury Diplomatic policy Contract $0 $0 $0 $2,175 $0 $0 and support ICASS Contract $0 $0 $0 $78 $0 $0
subject to IPERA requirements, such as domestic vendor guidelines and various sensitive payment areas. Sensitive payments. In 2005 and 2006, the Department contracted payments are those where the dollar amounts involved are with an external firm to perform recapture audit activities. usually not significant, but the public disclosure of improper However, after 2006, the contracted firm determined it was payments may result in significant criticism of the agency. not cost-effective to continue this function. CGFS realizes The Department has identified several areas of sensitive that additional recapture audit opportunities may exist and payments for review. They include: Premium Class Travel, will continue to collectively assess areas of greater risk of Executive Compensation, Representation Costs, Speaking improper and improper payments and implement recapture Honoraria and Gifts, Executive Perquisites, and the American audit measures deemed cost-effective. Recovery and Reinvestment Act payments. Premium Class Travel and American Recovery and Reinvestment Act payments are reviewed annually, and the other areas are SENSITIVE PAYMENTS reviewed on a rotating schedule depending on their level The Department does not have programs determined risk- of risk and sensitivity. susceptible for making significant improper payments at or above the threshold levels set by OMB. However, in addition The Department performed elective procedures in FY 2013 to the required annual IPERA reviews, Departments are also to determine if improper payments were made in association encouraged to conduct reviews of programs and activities that with Premium Class Travel and American Recovery and are prone to misinterpretation or misapplication of Federal Reinvestment Act payments.
136 | United States Department of State • 2013 Agency Financial Report IMPROPER PAYMENTS INFORMATION ACT AND OTHER LAWS AND REGULATIONS | OTHER INFORMATION
Premium Class Travel Reviews Federal Civil Penalties Inflation The Department’s mission is conducted throughout Adjustment Act the world and requires extensive travel, sometimes of a The Federal Civil Penalties Inflation Adjustment Act of significant duration. Because of the high volume of travel, 1990 established annual reporting requirements for civil the Department has made concerted efforts to monitor monetary penalties assessed and collected by Federal if official travel has adhered to Government-wide and agencies. The Department assesses civil fines and penalties Department regulations for premium class travel. on individuals for such infractions as violating the terms of munitions licenses, exporting unauthorized defense Beginning with FY 2006, the Department has annually articles and services, and valuation of manufacturing selected a random sample and supporting documentation was license agreements. In FY 2013, the Department assessed reviewed. There have been no instances where evidence was $41 million in new penalties against three companies, found that a business class travel payment was unapproved and collected $37 million of outstanding penalties from and needed to be recovered, or where the travelers flying six companies. In addition, the total outstanding balance business class were found to be ineligible. However, there due was reduced by $32 million as a result of adjustments have been instances where proper supporting documentation associated with remedial compliance measures. The balance was not readily available. Those errors represent an error rate outstanding at September 30, 2013, was $58 million. of 8 percent ($56,442) in FY 2013, 6 percent ($34,867) in FY 2012, and 10 percent ($36,645) in FY 2011. OMB Debt Management requires agencies to report improper payment errors based on three categories of errors: documentation and administrative Outstanding debt from non-Federal sources (net of allowance) errors, authentication and medical necessity errors, and decreased from $111.7 million at September 30, 2012 verification errors. All Department errors found each year to $81.3 million at September 30, 2013. Civil Monetary were attributable to documentation and administrative errors. Penalties decreased by $28 million at September 30, During FY 2014, the Department will undertake efforts to 2013, resulting in a decrease overall to the non-Federal correct the deficiencies noted during the FY 2013 review. source figures. American Recovery and Reinvestment Act (ARRA) Reviews Non-Federal receivables consist of debts owed to the The Department received $564 million in funding from the International Boundary and Water Commission, Civil American Recovery and Reinvestment Act. The Department Monetary Fund, and amounts owed for repatriation loans, obligated these funds during FY 2009 and FY 2010 and medical costs, travel advances, and other miscellaneous expended the majority of the funding during fiscal years receivables. 2010 – 2012, making a concerted effort to expend the monies as quickly as possible to positively contribute to The Department uses installment agreements, salary offset, the facilitation of the country’s recovery from the recent and restrictions on passports as tools to collect its receivables. recession. Of the remaining work performed during It also receives collections through its cross-servicing FY 2013, a random sample of ARRA expenses was selected agreement with the Department of the Treasury (Treasury). and supporting documentation was reviewed. As in the In 1998, the Department entered into a cross-servicing past years, all expenses were found to be appropriate, in agreement with Treasury for collections of delinquent compliance with the Department’s policies regarding ARRA receivables. In accordance with the agreement and the Debt activity, and supported by adequate documentation. Collection Improvement Act of 1996 (Public Law 104-134),
2013 Agency Financial Report • United States Department of State | 137 OTHER INFORMATION | IMPROPER PAYMENTS INFORMATION ACT AND OTHER LAWS AND REGULATIONS
Prompt Payment Act
TIMELINESS OF PAYMENTS
The Prompt Payment Act (PPA) requires Federal agencies to pay their bills on time. PPA assesses an interest penalty against Federal agencies that do not pay their vendors timely as required by law. In FY 2013, the Department timely paid 98 percent of the 553,886 payments subject to PPA regulations. The following chart reflects the timeliness of the Department’s payments from FY 2011 through FY 2013. During FY 2013, the Department paid $226 thousand in interest penalties, compared to $209 thousand in FY 2012, an eight percent increase.
U.S. Secretary of State John Kerry addresses his fellow foreign ministers at the outset of an ASEAN ministerial meeting in Bandar
Seri Bagawan, Brunei Darussalam, July 1, 2013. Department of State
the Department referred $2.8 million to Treasury for cross- servicing in FY 2013. Of the current and past debts referred to Treasury, $1.1 million was collected in FY 2013. Electronic Payments Receivables Referred to the Department of the Treasury for Cross-Servicing The payments made through Electronic Funds Transfer FY 2013 FY 2012 FY 2011 (EFT) were nearly 98 percent of the total payments made Number of Accounts 1,189 1,189 920 for domestic and overseas payments. Domestic operations Amounts Referred (dollars in millions) $2.8 $3.6 $2.1 accomplished over 98 percent of its payments with EFT Amounts Collected (dollars in millions) $1.1 $0.9 $1.0 this year. Overseas operations have a slightly lower EFT percentage (97 percent) than domestic operations due to the complexities of banking operations in some foreign countries. For FY 2013, approximately 3.6 million payments were disbursed for the Department of State.
138 | United States Department of State • 2013 Agency Financial Report FINANCIAL MANAGEMENT SYSTEMS SUMMARY | OTHER INFORMATION
Financial Management Systems Summary
Introduction
he financial activities of the Department of State Government agencies and private sector financial institutions (the Department or DOS) occur in approximately achieve. Not only has CGFS set such high goals, it has T 270 locations in 180 countries. We conduct business consistently surpassed these marks for overall satisfaction and transactions in over 135 currencies and even more languages satisfaction with the majority of its individual applications. and cultures. Hundreds of financial and management professionals around the globe allocate, disburse, and account Continued standardization and consolidation of financial for billions of dollars in annual appropriations, revenues, activities and leveraging investments in financial systems and assets. Among the Department’s customers are 45 U.S. to improve our financial business processes will lead to Government agencies in every corner of the world, served greater efficiencies and effectiveness. A key element to 24 hours a day, seven days a week. achieve improved efficiencies and controls in our financial management processes will be our efforts to standardize The Department’s efforts are guided by two overarching goals: financial business processes and consolidate financial services. providing world-class financial services that support strategic This change is not always easy with the decentralized post- decision-making, mission performance, and improved level financial services model that exists for the Department’s accountability and transparency to the American people; worldwide operations. In addition, over the next several and supporting the achievement of the agency’s strategic years, we will need to effectively leverage upgrades in our goals by enabling interagency planning and coordination. core financial system software, new locally employed (LE) Performance measures related to these goals include timely staff and American payroll and time and attendance (T&A) financial reporting, elimination of material weaknesses in deployments, new cashiering system deployment and internal control, the achievement of unqualified (“clean”) integrations/interfaces with other Department corporate audit opinions, elimination of improper payments, and systems to improve our processes and support of financial implementing resource management systems and processes operations. that meet Federal requirements. In addition, the Department endeavors to consolidate and standardize financial operations, We have made significant progress in modernizing and leverage best business practices and electronic technologies, consolidating Department resource management systems. and build a first-rate finance team. CGFS’ financial systems development activities are now operated under Capability Maturity Model Integration The nonprofit independent firm that conducts the (CMMI) industry standards. We have pushed to consolidate Department’s annual survey of overseas users of resource Department resource systems to the CGFS platform with management systems is one of the leading proponents of the goals of meeting user requirements, sharing a common benchmarking and best practices in business research. The platform and architecture, reflecting rationalized standard firm noted that the Department’s Bureau of the Comptroller business processes, and ensuring secure and compliant and Global Financial Services (CGFS) set its overall systems. OMB has reviewed our core financial systems plans performance target for customer satisfaction at 80 percent as part of their U.S. Government-wide review of major for all services, a goal considerably higher than what many financial system investments. OMB resoundingly approved
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our investment path and segmented delivery approach. We Financial Systems Program have embarked on a multi-year effort to consolidate resource management systems to CGFS, specifically within the Global The financial systems program includes the Global Financial Financial Management Systems Directorate. This includes Management System (GFMS), the Regional Financial budget systems such as the Bureau of Budget and Planning’s Management System (RFMS), and the Consolidated (BP) Central Resource Management System (CRMS) Overseas Accountability Support Toolbox (COAST). and Budget Resource Management System (BRMS), International Cooperative Administrative Support Services The Global Financial Management System. GFMS (ICASS), and Resource Allocation and Budget Integration centrally accounts for billions of dollars recorded through Toolkit (WebRABIT), which were developed independently over 5 million annual transactions by more than 1,000 users in past years. We expect our financial systems to meet user and over 25 “handshakes” with other internal and external and Federal requirements, share a common platform and systems. GFMS is critical to the Department’s day-to-day architecture, reflect rationalized standard business processes, operations. It supports the execution of DOS’ mission by be developed using CMMI, and be compliant, controlled, effectively accounting for business activities and recording the and secure. associated financial information, including obligations and costs, performance, financial assets, and other data. It supports OMB continues its initiative to standardize Government- the Department’s domestic offices and serves as the agency’s wide business processes to address the Federal Government’s repository of corporate data. long-term need to improve financial management and assist agencies in substantially complying with the Federal Financial GFMS is based on commercial off-the-shelf (COTS) software Management Improvement Act (FFMIA). Also, over the with updated annual releases. In June 2013, an update of next several years, a number of new Federal accounting GFMS was launched to all Department users, providing over and information technology standards, many driven by 150 enhancements. The update also eliminated numerous the Department of Treasury, will become effective. These costly customizations which will result in lower maintenance include Government-wide projects to standardize business costs. requirements and processes, establish and implement a Government-wide accounting classification, and support the The Regional Financial Management System. RFMS is replacement of financial statement and budgetary reporting. the global accounting and payment system that has been The Department’s implementation of new standards and implemented for posts around the world. RFMS includes Government-wide reporting will strengthen both our a common accounting system for funds management, and financial and information technology management practices. obligation and voucher processing. In FY 2013, CGFS started a multi-year project to update RFMS to the newest The Department uses multiple financial management release. The RFMS update is scheduled for an FY 2015 systems that are critical to effective agency-wide financial second quarter implementation. management, financial reporting, and financial control. These systems are included in various programs. An overview Through the GFMS/RFMS Virtual Merge initiative, the of these programs follows. Department continues to leverage the MomentumTM platform’s integration software tools to improve business processes and lower the total cost of ownership of its financial systems. The agency also expanded the integration between GFMS and RFMS for vendor information and obligation documents.
140 | United States Department of State • 2013 Agency Financial Report FINANCIAL MANAGEMENT SYSTEMS SUMMARY | OTHER INFORMATION
The Consolidated Overseas Accountability Support WebRABIT is an application used by all the regional bureaus Toolbox. COAST is an application suite deployed to more for program and Public Diplomacy execution year budgets than 180 posts around the world as well as to Department at their posts. In FY 2013, functionality was added to allow of State and other agency headquarters offices domestically. overseas missions to incorporate, in their budget planning COAST captures and maintains accurate, meaningful and execution, funding that involves the Bureau of Consular financial information, and provides it to decision makers Affairs and the Bureau of International Narcotics and Law in a timely fashion. The current COAST suite consists Enforcement Affairs. of COAST Reporting, COAST Encryption, COAST Cashiering, and COAST Payroll Reporting. The ICASS or WebICASS system is the principal means by which the U.S. Government shares the cost of common COAST Cashiering is replacing the legacy Windows administrative support at its more than 270 diplomatic Automated Cashiering System (WinACS). It improves and consular posts overseas. The Department has statutory on the core functionality of WinACS including improved authority to serve as the primary overseas service provider to security for cashiering activities by enforcing greater other agencies. In FY 2013, CGFS continued developing and adherence to the Department’s Foreign Affairs Manual testing new software to transition to a centrally hosted system. and Foreign Affairs Handbook regulations and providing greater controls to financial management officers overseas. Travel Program The global deployment of COAST Cashiering is ongoing. COAST Cashiering has been successfully deployed in 20 The E-Gov Travel Service (ETS), including the second posts at the close of FY 2013. Deployment to additional generation ETS2 system, is a Government-wide, web-based, posts will continue in FY 2014. world-class travel management service, launched in 2003 to save significantly on costs and improve employee productivity. Planning and Budget Program It serves as the gateway to optimize the Government’s scale and full market leverage to lower travel costs. ETS serves as In FY 2013, the Department initiated a consolidated Next the backbone of GSA’s managed travel programs providing Generation Budgeting System to standardize, consolidate, and access to air, car, and lodging as well as the foundation for simplify the budgeting systems currently used. The first phase implementing a shared service for civilian agency travel of the project will be the replacement of the CRMS, a legacy management. system that dates from 1999. Other budget systems are the WebRABIT and ICASS systems identified earlier. During FY 2013, the Department focused on evolutionary changes to its web-based COTS software that improves CRMS processes apportionments, warrants, non-expenditure the user interface and incorporates additional Department transfers, fund allocations, and reimbursement agreements, requirements in the COTS package. As of September 2013, which are interfaced into the Department’s accounting system. all domestic bureaus and 180 posts have been migrated. It is used by all bureaus and missions to receive allotment notifications. BP uses the system for financial planning of Grants Program the Department’s operating accounts. The next major release, scheduled for the first quarter of FY 2014, will further The Department continued to make significant progress increase compliance with the controls established in National migrating to a Grants Management Line of Business solution Institute of Standards and Technology’s Special Publication in FY 2013. OMB’s line of business initiative seeks to cut 800-53, Recommended Securing Controls for Federal costs and improve service by consolidating computer networks Information Systems and Organizations. and functions into a few agencies that act as service providers to other agencies. Implementation of the Department of
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Health and Human Services’ GrantSolutions system as the Compensation Program single, standard system at the Department will replace the collection of separate, stovepipe Federal assistance systems The Department continued to execute a phased deployment used across the agency. Internally, we refer to this system as strategy as depicted in the diagram below that, when the State Assistance Management System (SAMS). completed, will completely replace eight legacy payroll systems with a single, COTS-based solution better During FY 2013, the Department expanded deployment suited to address the widely diverse requirements of the to 24 bureaus. By the end of FY 2014, the Department will Department and the other 45 civilian agencies that rely have expanded deployment to the remaining two additional on the Department for overseas payroll. Not only will the bureaus. The result will be a single, automated system Global Foreign Affairs Compensation System (GFACS) that is integrated with the GFMS. SAMS will standardize address common requirements in a more consistent and the Department’s assistance-related business process from efficient manner, it will leverage a rules-based, table-driven solicitation through award and close-out thereby ensuring a architecture to promote compliance with the sometimes high degree of consistency and manageability. In addition, varying statutes found across the Foreign and Civil Service Department-wide deployment will bring about compliance Acts and, perhaps more importantly, the local laws and with key U.S. Government initiatives such as Grants.gov practices applicable to the many countries in which civilian and reporting requirements such as the Federal Funding agencies operate. Accountability and Transparency Act of 2006 and the Federal Assistance Award Data System. Requirements analysis is to The GFACS LE staff payroll module was implemented begin in FY 2014 for overseas use of SAMS. in December 2012 with Guatemala as the first converted
142 | United States Department of State • 2013 Agency Financial Report FINANCIAL MANAGEMENT SYSTEMS SUMMARY | OTHER INFORMATION
country. Twenty-five additional countries are planned for The data warehouse also provides, on a daily basis, critical conversion in CY 2013. The Department plans to have all financial information to the Department’s data warehouse. countries converted to GFACS by early CY 2015. In FY 2013, a major technical upgrade to a more current technology platform was completed. Progress was also The last pay module to be implemented in GFACS made on the development of dashboards and supporting is American payroll. It is currently scheduled for full infrastructure for the loading and reporting of budget and implementation in the latter half of CY 2014. The web- travel data in the data warehouse, with full implementations based global T&A product, based on the same technology of both scheduled for FY 2014. as GFACS, is scheduled for initial implementation late in CY 2014. This product has the capability of electronic In addition to the GFMS Data Warehouse, CGFS continues routing, electronic signature, and self-service features. As a to work on business intelligence systems to support result, it will bring more efficient and modern process to the Department financial managers through several features of the Department’s workforce. COAST system. COAST Reporting was implemented in late FY 2006, to support overseas financial management officers Business Intelligence Program and post decision makers. In subsequent years, improvements were added to provide the capability to develop budget plans Domestically, and in support of Department-wide reporting, and monitor execution of those plans. Improvements were the GFMS Data Warehouse was implemented in FY 2007. also made to the information drill-down to allow significant Based on a modern, browser-based technology platform, the flexibility in filtering and summarizing financial transactions. data warehouse enables users to access financial information In addition, COAST Payroll Reporting provides access to from standard, prepared reports or customized queries. It payroll-specific data at the post, bureau, and agency levels reports in real-time to compile the financial information and will take advantage of COAST’s existing drill-down needed for informed decision making on a day-to-day basis. and reporting functionality.
2013 Agency Financial Report • United States Department of State | 143 OTHER INFORMATION | HERITAGE ASSETS
Heritage Assets
he Department has collections of art objects, Diplomatic Reception Rooms Collection furnishings, books, and buildings that are T considered heritage or multi-use heritage assets. In 1961, the State Department’s Office of Fine Arts began the These collections are housed in the Diplomatic Reception privately-funded Americana Project to remodel and redecorate Rooms, senior staff offices in the Secretary’s suite, offices, the 42 Diplomatic Reception Rooms - including the offices of reception areas, conference rooms, the cafeteria and related the Secretary of State - on the seventh and eighth floors of the areas, and embassies throughout the world. The items Harry S Truman Building. The Secretary of State, the President, have been acquired as donations, are on loan from the and Senior Government Officials use the rooms for official owners, or were purchased using gift and appropriated functions promoting American values through diplomacy. funds. The assets are classified into eight categories: the The rooms reflect American art and architecture from the time Diplomatic Reception Rooms Collection, Art Bank of our country’s founding and its formative years, 1740 - 1840. Program, Art in Embassies Program, Cultural Heritage The rooms also contain one of the most important collections of Collection, Library Rare & Special Book Collection, early Americana in the nation, with over 5,000 objects, including the Secretary of State’s Register of Culturally Significant museum-quality furniture, rugs, paintings, and silver. These Property, the U.S. Diplomacy Center, and the Blair House. items have been acquired through donations or purchases funded Items in the Register of Culturally Significant Property through gifts from private citizens, foundations, and corporations. category are classified as multi-use heritage assets due to No tax dollars have been used to acquire or maintain the their use in general government operations. collection. There are three public tours each day.
The John Quincy Adams State Drawing Room of the Diplomatic Reception Rooms, 8th Floor, Harry S Truman Building, Washington, D.C.
Department of State
144 | United States Department of State • 2013 Agency Financial Report HERITAGE ASSETS | OTHER INFORMATION
Art Bank works include “Something Intimate” (2010), Bruno Andrade, acrylic (left) and “Flora III (red)” (2007), Nate Cassie, woodcut (right).
Art Bank Program Cultural Heritage Collection
The Art Bank Program was established in 1984 to acquire The Cultural Heritage Collection, which is managed by artworks that could be displayed throughout the Department’s the Bureau of Overseas Buildings Operations, Office of offices and annexes. The works of art are displayed in staff Residential Design and Cultural Heritage, is responsible for offices, reception areas, conference rooms, the cafeteria, and identifying and maintaining cultural objects owned by the related public areas. The collection consists of original works Department in its properties abroad. The collections are on paper (watercolors and pastels) as well as limited edition identified based upon their historic importance, antiquity, prints, such as lithographs, woodcuts, intaglios, and silk- or intrinsic value. screens. These items are acquired through purchases funded by contributions from each participating bureau. Diplomacy Center
Rare & Special Book Collection The U.S. Diplomacy Center will be a unique education and exhibition venue at the Department of State that will explore In recent years, the Ralph J. Bunche Library has identified the history, practice and challenges of U.S. diplomacy. It will books that require special care or preservation. Many of be a place that fosters a greater understanding of the role these publications have been placed in the Rare Books and of U.S. diplomacy, past, present and future, and will be an Special Collections Room, which is located adjacent to educational resource for students and teachers in the United the Reading Room. Among the treasures is a copy of the States and around the globe. Exhibitions and programs Nuremberg Chronicles, which was printed in 1493; volumes will inspire visitors to make diplomacy a part of their lives. signed by Thomas Jefferson; and books written by Foreign The Diplomacy Center is located within the Bureau of Public Service authors. Affairs, and actively collects artifacts for exhibitions.
2013 Agency Financial Report • United States Department of State | 145 OTHER INFORMATION | HERITAGE ASSETS
Secretary of State’s Register of Blair House Culturally Significant Property Composed of four historic landmark buildings owned by GSA, The Secretary of State’s Register of Culturally Significant Blair House, the President’s Guest House, operates under the Property was established in January 2001 to recognize the stewardship of the Department of State’s Office of the Chief of Department’s owned properties overseas that have historical, Protocol and has accommodated official guests of the President architectural, or cultural significance. Properties in this of the United States since 1942. In FY 2012, these buildings category include chanceries, consulates, and residences. All were added to the Secretary’s Register of Culturally Significant these properties are used predominantly in general government Property for their important role in the U.S. history and the operations and are thus classified as multi-use heritage conduct of diplomacy over time. Its many elegant rooms are assets. Financial information for multi-use heritage assets is furnished with collections of predominantly American and presented in the principal statements. The register is managed English fine and decorative arts, historical artifacts, other by the Bureau of Overseas Buildings Operations, Office of cultural objects, rare books, and archival materials docu- Residential Design and Cultural Heritage. menting the Blair family and buildings history from 1824 to the present. Objects are acquired via purchase, donation or Art in Embassies Program transfer through the private non-profit Blair House Restora- tion Fund; transfers may also be received through the State The Art in Embassies Program was established in 1964 to Department’s Office of Fine Arts and Office of the Chief of promote national pride and the distinct cultural identity Protocol. Collections are managed by the Office of the Curator of America’s arts and its artists. The program, which is at Blair House, which operates under the Office of Fine Arts. managed by the Bureau of Overseas Buildings Operations, provides original U.S. works of art for the representational rooms of United States ambassadorial residences worldwide. The works of art were purchased or are on loan from individuals, organizations, or museums.
New Delhi Chancery, built in the 1950s, was the first major embassy building project approved in the Eisenhower years. The Chancery was designed by master architect Edward Durell Stone, who captured history and fantasy in a memorable symbol of the United States’ commitment to India after its independence. The Chancery expresses the characteristic American preference for Honoring the close friendship between President Abraham efficiency and straightforwardness.Department of State/OBO Lincoln and the Blairs, the Lincoln Room of Blair House displays Civil War-era artifacts from the family collection, including rare political cartoons and prints, a Mathew Brady photograph, and
documents signed by Lincoln. Photographs in the Carol M. Highsmith
Archive, Library of Congress, Prints and Photographs Division.
146 | United States Department of State • 2013 Agency Financial Report
Intellectual Property Enforcement Promotes U.S. Innovation
he Department promotes U.S. innovation by advocating Tfor the effective protection and enforcement of intellectual property rights (IPR) around the world. Its advocacy seeks to strengthen economic rules and norms, increase U.S. business and private sector growth and investment, and improve market access for U.S. goods and services.
The Department actively participates in multilateral and bilateral negotiations and discussions on IPR-related issues, and distributes training and technical assistance funds to help build IPR law enforcement capacity in developing countries, aligning with the Department’s strategic goal five: support American prosperity through economic diplomacy. The Department is also active in interagency efforts to combat trade in counterfeit and pirated goods.
Strong IPR protection spurs innovation, economic growth, and The 2013 Special 301 Report reviews the global state of intellectual property job creation in the United States and other countries. It turns rights protection and enforcement. Office of the United States Trade Representative innovative ideas into valuable business assets, is integral to the rule of law, and promotes public health and safety. The Office of the U.S. Trade Representative, in coordination with the Department ■■ Leading partner engagement on IPR issues via the multilateral and other partner Federal Government agencies, is responsible structure of World Trade Organization agreements. for the preparation of the annual Special 301 Report. This report reviews the global state of intellectual property rights protection ■■ Working with trading partners through bilateral and regional and enforcement. It also identifies the initiatives to strengthen agreements, including free trade agreements. IPR, including: ■■ Bringing the Anti-Counterfeiting Trade Agreement into force to combat the proliferation of commercial-scale counterfeiting ■■ Advancing the Trans-Pacific Partnership Agreement to and piracy. strengthen U.S. trade and investment interests in the Asia-Pacific region. ■■ Coordinating the review of IPR practices in connection with trade preference programs. ■■ Launching negotiations on the Transatlantic Trade and Investment Partnership Agreement between the United For more information, please read the 2013 Special 301 Report: States and the European Union. http://www.ustr.gov/about-us/press-office/reports- and-publications/2013/2013-special-301-report
2013 Agency Financial Report • United States Department of State | 147 As part of its heritage asset responsibilities, the Department of State operates as steward of the Blair House, the President’s Guest House. The walls of Blair House’s Jackson Place Dining Room are deco- rated with scenic murals featuring Washington D.C.’s most historic monuments and buildings painted by American artist Robert Jackson. Photographs in the Carol M. Highsmith Archive, Library of Congress, Prints and Photographs Division. Appendices
Appendix A: Abbreviations and Acronymns
A Bureau of Administration (DOS) CIO Chief Information Officer A&A Assessment and Authorization CMMI Capability Maturity Model Integration ADP Automated Data Processing COAST Consolidated Overseas Accountability AF Bureau of African Affairs (DOS) Support Toolbox AFR Agency Financial Report COR Contracting Officer’s Representative AGA Association of Government Accountants COTS Commercial Off-the-Shelf AIDS Acquired Immunodeficiency Syndrome CRMS Central Resource Management System AML Anti-Money Laundering CSO Bureau of Conflict and Stabilization Operations (DOS) AP Associated Press CSRS Civil Service Retirement System APG Agency Priority Goal CTF Counterterrorism Finance APP Annual Performance Plan CY Current Year Appendix A OMB Circular A-123, Appendix A D&CP Diplomatic and Consular Programs (DOS) APQC American Productivity and Quality Center DCF Defined Contributions Fund APR Annual Performance Report DCFO Deputy Chief Financial Officer (DOS) AQM Office of Acquisitions Management (DOS) Department U.S. Department of State ARB Accountability Review Board DHS U.S. Department of Homeland Security ARD Accounts Receivable Division (DOS) DoD U.S. Department of Defense ARRA American Recovery and Reinvestment Act of 2009 DOL U.S. Department of Labor ASEAN Association of Southeast Asian Nations DOS U.S. Department of State BCA Budget Control Act of 2011 DR Democratic Republic BDT Bomb Disposal Team DS Bureau of Diplomatic Security (DOS) BIDS Business Information Database System E Under Secretary for Economic Growth, Energy BP Bureau of Budget and Planning (DOS) and Environment (DOS) BRMS Budget Resource Management System EAP Bureau of East Asian and Pacific Affairs (DOS) CA Bureau of Consular Affairs (DOS) EC-LEDS Enhancing Capacity – Low Emission CAP Cross-Agency Priority Development Strategies CBJ Congressional Budget Justification ECA Bureau of Educational and Cultural Affairs CDM Continuous Diagnostics and Mitigation (DOS) CEAR Certificate of Excellence in Accountability ECE Educational and Cultural Exchange Programs Reporting EFT Electronic Funds Transfer CFO Chief Financial Officer E-Gov E-Gov Travel Service CGFS Bureau of the Comptroller and Global Financial ERMA U.S. Emergency Refugee and Migration Services (DOS) Assistance CIF Capital Investment Fund
2013 Agency Financial Report • United States Department of State | 149 APPENDIX A | ABBREVIATIONS AND ACRONYMNS
ESCM Embassy Security, Construction, and Maintenance GPI Global Partnership Initiative ESF Economic Support Fund GPRA Government Performance and Results Act of 1993 EU European Union GPRAMA GPRA Modernization Act of 2010 EUR Bureau of European and Eurasian Affairs (DOS) GSA U.S. General Services Administration F Office of U.S. Foreign Assistance Resources (DOS) HHS U.S. Department of Health and Human Services FAO Food and Agriculture Organization (UN) HIV Human Immunodeficiency Virus (AIDS) FASAB Federal Accounting Standards Advisory Board HTP High Threat Post FBWT Fund Balance With Treasury HTHR High-Threat, High-Risk FECA Federal Employees Compensation Act IA Bureau of Information Assurance (DOS) FEGLIP Federal Employees Group Life Insurance Program IAS International Accounting Standards FEHBP Federal Employees Health Benefits Program IASB International Accounting Standards Board FERS Federal Employees Retirement System IBWC International Boundary and Water Commission FFMIA Federal Financial Management Improvement Act ICAO International Civil Aviation Organization (UN) of 1996 ICASS International Cooperative Administrative Support FISMA Federal Information Security Management Act Services (DOS) of 2002 ICOFR Internal Control Over Financial Reporting FMF Foreign Military Financing IdEA International diaspora Engagement Alliance FMFIA Federal Managers’ Financial Integrity Act of 1982 IDP International Displaced Person FMLP Future Minimum Lease Payments IG Inspector General FSI Foreign Service Institute IIP Bureau of International Information Programs (DOS) FSN Foreign Service National ILMS Integrated Logistics Management System FSNAEB Foreign Service Nationals’ After-Employment IMET International Military Education and Training Benefits INCLE International Narcotics Control and Law Enforcement FSN DCF Foreign Service National Defined Contributions Fund INL Bureau of International Narcotics and Law Enforcement (DOS) FSNLTF Foreign Service National Separation Liability Trust Fund INR Bureau of Intelligence and Research (DOS) FSO Foreign Service Officer IO Bureau of International Organizations (DOS) FSRDF Foreign Service Retirement and Disability Fund IPE Office of Intellectual Property Enforcement (DOS) FSRDS Foreign Service Retirement and Disability System IPERA Improper Payments Elimination and Recovery Act of 2010 FSPS Foreign Service Pension System IPIA Improper Payments Information Act of 2002 FTE Full-Time Equivalent IPR Intellectual Property Rights FWCB Federal Workers’ Compensation Benefits IRM Bureau of Information Resources Management (DOS) FY Fiscal Year ISAT Interagency Security Assistance Team GAAP Generally Accepted Accounting Principles ISP Increased Security Proposal GAO Government Accountability Office IT Information Technology GeT Global E-Travel Maintenance Program J Under Secretary for Civilian Security, Democracy and GFACS Global Foreign Affairs Compensation System Human Rights (DOS) GFE Government Furnished Equipment LDP Language Designated Position GFMS Global Financial Management System LEED Leadership in Energy and Environmental Design GHP Global Health Programs LE Staff Locally Employed Staff GIRoA Government of the Islamic Republic of LM Office of Logistics Management (DOS) Afghanistan LNA Limited Non-Career Appointment GMRA Government Management Reform Act of 1994
150 | United States Department of State • 2013 Agency Financial Report ABBREVIATIONS AND ACRONYMNS | APPENDIX A
LSSS Local Social Security System RLA Resident Legal Advisor M Under Secretary for Management (DOS) RFMS Regional Financial Management System MCSC Management Control Steering Committee (DOS) RSI Required Supplementary Information MD&A Management’s Discussion and Analysis SAMS State Assistance Management System MRA Migration and Refugee Assistance SAT Senior Assessment Team NADR Nonproliferation, Antiterrorism, Demining, SBR Statement of Budgetary Resources and Related Programs SCA Bureau of South and Central Asian Affairs (DOS) NATO North Atlantic Treaty Organization SFFAS Statements of Federal Financial Accounting NEA Bureau of Near Eastern Affairs (DOS) Standards NGO Non-Governmental Organization SG Strategic Goal NIST National Institute of Standards and Technology SIGAR Special Inspector General for Afghanistan NIV Non-Immigrant Visa Reconstruction SNC OAS Organization of American States Statement of Net Cost SoD OBO Overseas Buildings Operations (DOS) Segregation of Duties SOS OC Office of Claims (DOS) Schedule of Spending SWT OCO Overseas Contingency Operations (DOS) Summer Work Travel T OECD Organization for Economic Cooperation Under Secretary for Arms Control and and Development International Security Affairs (DOS) T&A OI Other Information Time and Attendance TB OIG Office of Inspector General (DOS) Technical Bulletin TPP OMA Office of Oversight and Management Trans-Pacific Partnership Analysis (DOS) Treasury U.S. Department of Treasury OMB U.S. Office of Management and Budget TSP Thrift Savings Plan OPCW Organization for the Prohibition of TTIP Transatlantic Trade and Investment Partnership Chemical Weapons UDO Undelivered Orders OPM U.S. Office of Personnel Management UK United Kingdom OSCE Organization for Security and Co-operation ULO Unliquidated Obligations in Europe UN United Nations P Under Secretary for Political Affairs (DOS) UNEP United Nations Environment Programme (UN) P&B Planning and Budgeting Program UNESCO United Nations Educational, Scientific and PBO Projected Benefit Obligation Cultural Organization (UN) PEPFAR President’s Emergency Plan for AIDS Relief UNVIE U.S. Mission to International Organizations PKO Peacekeeping Organization in Vienna PMS Payment Management System (HHS) USAID U.S. Agency for International Development PPA Prompt Payment Act USC U.S. Code PRM Bureau of Population, Refugees, and Migration USM–I U.S. Mission – Iraq (DOS) USSGL U.S. Standard General Ledger PSA Personal Services Agreement VAT Value Added Taxes PSC Personal Services Contractor WCF Working Capital Fund PUC Projected Unit Credit WebRABIT Resource and Budget Integration Toolkit PY Prior Year WHA Bureau of Western Hemisphere Affairs (DOS) QDDR Quadrennial Diplomacy and Development Review WinACS Windows Automated Cashiering System R Under Secretary for Public Diplomacy and Public WSP Worldwide Security Protection Affairs (DOS)
2013 Agency Financial Report • United States Department of State | 151 APPENDIX B | DEPARTMENT OF STATE LOCATIONS Appendix B: Department of State Locations
Department of State Locations October 2013
152 | United States Department of State • 2013 Agency Financial Report DEPARTMENT OF STATE LOCATIONS | APPENDIX B Appendix B: Department of State Locations
2013 Agency Financial Report • United States Department of State | 153 APPENDIX C | U.S. SECRETARIES OF STATE PAST AND PRESENT
Appendix C: U.S. Secretaries of State Past and Present
27. William Maxwell Evarts (1877-1881) 28. James Gillespie Blaine (1881-1881) 29. Frederick Theodore Frelinghuysen(1881-1885) 30. Thomas Francis Bayard(1885-1889) 31. James Gillespie Blaine (1889-1892) 32. John Watson Foster (1892-1893) 33. Walter Quintin Gresham (1893-1895) 34. Richard Olney (1895-1897) 35. John Sherman (1897-1898) 36. William Rufus Day (1898-1898) 37. John Milton Hay (1898-1905) Supreme Court Justice Elena Kagan swears in Secretary of State John 38. Elihu Root (1905-1909) Kerry on February 1, 2013 in the Foreign Relations Committee Room 39. Robert Bacon (1909-1909) in the Capitol. They were joined by his wife Teresa, daughter Vanessa, 40. Philander Chase Knox (1909-1913) brother Cameron, and his Senate staff. Department of State 41. William Jennings Bryan (1913-1915) 42. Robert Lansing (1915-1920) 1. Thomas Jefferson(1790-1793) 43. Bainbridge Colby (1920-1921) 2. Edmund Jennings Randolph (1794-1795) 44. Charles Evans Hughes (1921-1925) 3. Timothy Pickering (1795-1800) 45. Frank Billings Kellogg (1925-1929) 4. John Marshall (1800-1801) 46. Henry Lewis Stimson (1929-1933) 5. James Madison (1801-1809) 47. Cordell Hull (1933-1944) 6. Robert Smith (1809-1811) 48. Edward Reilly Stettinius (1944-1945) 7. James Monroe (1811-1817) 49. James Francis Byrnes (1945-1947) 8. John Quincy Adams (1817-1825) 50. George Catlett Marshall (1947-1949) 9. Henry Clay (1825-1829) 51. Dean Gooderham Acheson (1949-1953) 10. Martin Van Buren (1829-1831) 52. John Foster Dulles (1953-1959) 11. Edward Livingston (1831-1833) 53. Christian Archibald Herter (1959-1961) 12. Louis McLane (1833-1834) 54. David Dean Rusk (1961-1969) 13. John Forsyth (1834-1841) 55. William Pierce Rogers (1969-1973) 14. Daniel Webster (1841-1843) 56. Henry A. (Heinz Alfred) Kissinger (1973-1977) 15. Abel Parker Upshur (1843-1844) 57. Cyrus Roberts Vance (1977-1980) 16. John Caldwell Calhoun (1844-1845) 58. Edmund Sixtus Muskie (1980-1981) 17. James Buchanan (1845-1849) 59. Alexander Meigs Haig (1981-1982) 18. John Middleton Clayton (1849-1850) 60. George Pratt Shultz (1982-1989) 19. Daniel Webster (1850-1852) 61. James Addison Baker (1989-1992) 20. Edward Everett (1852-1853) 62. Lawrence Sidney Eagleburger (1992-1993) 21. William Learned Marcy (1853-1857) 63. Warren Minor Christopher (1993-1997) 22. Lewis Cass (1857-1860) 64. Madeleine Korbel Albright (1997-2001) 23. Jeremiah Sullivan Black (1860-1861) 65. Colin Luther Powell (2001-2005) 24. William Henry Seward (1861-1869) 66. Condoleezza Rice (2005-2009) 25. Elihu Benjamin Washburne (1869-1869) 67. Hillary Rodham Clinton (2009-2013) 26. Hamilton Fish (1869-1877) 68. John Forbes Kerry (2013-present)
154 | United States Department of State • 2013 Agency Financial Report WEBSITES OF INTEREST | APPENDIX D
Appendix D: Websites of Interest
Assistant Secretary of State Robert O. Blake participates in a Facebook chat on U.S.-India relations, July 2, 2013. Department of State
hank you for your interest in the U.S. Department of State and its Fiscal Year 2013 Agency Financial T Report. Electronic copies of this report and prior years’ reports are available through the Department’s website: www.state.gov. DipNote – U.S. Department of State Official Blog: www.blogs.state.gov You may also stay connected with the Department via social Facebook: www.facebook.com/usdos media and multimedia platforms listed to the right. Flickr: www.flickr.com/photos/statephotos In addition, the Department publishes State Magazine Google+: www.plus.google.com/+StateDept#+StateDept/posts monthly, except bimonthly in July and August. This magazine facilitates communication between management RSS Feeds: www.state.gov/misc/echannels/66791.htm and employees at home and abroad and acquaints employees Tumblr: www.statedept.tumblr.com with developments that may affect operations or personnel. The magazine is also available to persons interested in Twitter: @StateDept working for the Department of State and to the general YouTube Channel: www.youtube.com/user/statevideo public. State Magazine may be found online at: www.state.gov/m/dghr/statemag.
2013 Agency Financial Report • United States Department of State | 155 Global Diplomacy Travels John Forbes Kerry has visited more than 30 countries, traveling over 191,000 miles, during his first 8 months as Secretary of State.
FY 2013 Image Credits
Associated Press (AP): Cover (bottom left), Table of Contents, Message from the Secretary, pages 3, 22, 84, 120, Inside Back Cover Department of State: Cover (top left and right), Inside Front Cover, Table of Contents, pages 6, 8, 9, 10, 15, 19, 20, 23, 25, 27, 28, 29, 30, 32, 34, 37, 43, 52, 92, 94, 98, 138, 144, 146, 154, 155 iStock: Page 36 Office of the United States Trade Representative:Page 147 Photographs in the Carol M. Highsmith Archive, Library of Congress, Prints and Photographs Division: Pages 146, 148 State Magazine: Page 17 The DesignPond: Page 56
Table of Contents Image Captions
Inside Front Cover: U.S. Secretary of State John Kerry departs the United Kingdom en route to the Republic of Korea after participating in the G8 ministerial meetings in London, United Kingdom, April 11, 2013. Department of State Table of Contents: Images (Left) to (Right): (1) U.S. Secretary of State John Kerry delivers a speech to U.S. foreign service workers at the U.S. Embassy in Tokyo during a “Meet and Greet” gathering, April 15, 2013. ©AP Image; (2) Under Secretary for Political Affairs Wendy Sherman greets Berta Soler, Spokesperson for the Ladies in White (Damas de Blanco), before their meeting at the U.S. Department of State in Washington, D.C., October 24, 2013. Department of State; and (3) The State Department promotes new science outreach platforms – the Science, Technology and Innovation Expert Partnership and the Networks of Diasporas in Engineering and Science – as integral components of U.S. diplomacy. Department of State.
156 | United States Department of State • 2013 Agency Financial Report Acknowledgements
This Agency Financial Report (AFR) was produced Global Financial Services personnel in Charleston, with the energies and talents of Department of Bangkok, Paris and Washington, D.C. State staff in Washington, D.C. and our offices and posts around the world. We offer our sincerest Other Contributors: thanks and acknowledgement. In particular, Stephanie Cabell, Theresa Gagnon, Luis L. Gonzalez, we recognize the following individuals and Juan Kays, Yaropolk T. Kulchyckyj, David Podgorski, organizations for their contributions: Robinson Ramirez, Patricia Sommers, Matthew Walsh, Rebecca Webb, and John Zakrajsek. Office of the Deputy Chief Financial Officer: Timothy Macdonald, Managing Director of We would also like to acknowledge the Office of Financial Policy, Reporting & Analysis Inspector General for their objective review of the Department’s performance and Kearney & Carol Gower, Director, Reporting & Analysis Company for the professional manner in which Monika Moore and Joseph Peter, AFR Editors they conducted the audit of the FY 2013 financial statements. Brad Biondi, Nadine Bradley, Carolyn Brown, Melissa Clark, Carole Clay, Tomoko Davis, Nancy We offer special thanks to our designers, Durham, Nicole Durity-Thomas, Cindy Fleming, Michael James, Sheri Beauregard, and Michelle Greene, Matthew H. Johnson, Gregory Don James of The DesignPond. Jones, Anne Kahle, Yen Le, Daniel Louie, Ava Lun, Trevor McNamara, Caroline Rabil, Frank Rosado, Troy Scaptura, Colleen Stakem, Kelley Tynan, Donald Wood, Khalida Yousuf, and Nima Zabahi.
The Agency Financial Report for Fiscal Year 2013 is published by the
U.S. Department of State Bureau of the Comptroller and Global Financial Services Office of Financial Policy, Reporting and Analysis
An electronic version is available on the World Wide Web at
http://www.state.gov/s/d/rm/rls/perfrpt/2013/index.htm
Please call (202) 261-8620 with comments, suggestions, or requests.
U.S. Department of State Publication Bureau of Public Affairs U.S. Secretary of State John Kerry steps aboard an Air Force December 2013 C-17 aircraft following his visit to Baghdad, March 24, 2013.
©AP Image
Note: The Bureau of Public Affairs, Office of Website Management (PA/WM) assisted the Bureau of the Comptroller and Global Financial Services with the production of the FY 2013 Agency Financial Report, including images from AP/Wide World. 2201 C Street, N.W. Washington, D.C. 20520 (202) 647-4000 www.state.gov